Allied Property and Casualty Insurance Company v. Roberts et al
Filing
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MEMORANDUM and ORDER signed by Judge Morrison C. England, Jr on 6/20/11: Defendants' Motion to Stay is GRANTED 11 . Case stayed. (Kaminski, H)
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UNITED STATES DISTRICT COURT
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EASTERN DISTRICT OF CALIFORNIA
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ALLIED PROPERTY AND CASUALTY
INSURANCE COMPANY,
No. 2:11-cv-00740-MCE-KJN
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Plaintiff,
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v.
MEMORANDUM AND ORDER
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ALVIN ROBERTS, SHIRLEY
ROBERTS, ALFONSO GARCIA,
JESSIE HERNANDEZ, ALBERT HUNG,
MANUEL A.P. GONZALEZ AND
ALLSTATE INSURANCE COMPANY,
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Defendants.
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Through this action, Plaintiff Allied Property and Casualty
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Insurance Company (“Plaintiff”) seeks rescission of a homeowners
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policy issued to its insureds, Defendants Alvin and Shirley
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Roberts (“Defendants”), and a declaratory judgment that it owes
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no coverage for two tort actions brought against Defendants in
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Sacramento County Superior Court.
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Defendants’ Motion to Stay the instant federal court proceedings
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pending resolution of the underlying tort proceedings filed
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against Defendants in state court.
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Presently before the Court is
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The tort proceedings stem from the same alleged incident and
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facts at issue in the federal proceedings.
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was filed on April 26, 2011.
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Plaintiff filed a timely opposition to Defendants’ Motion to Stay
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on May 26, 2011 (Pl.’s Opp’n, ECF No. 17), to which Defendants
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filed a timely reply (Defs.’ Reply, June 2, 2011, ECF No. 21).
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For the reasons set forth below, Defendants’ Motion to Stay is
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granted.1
Defendants’ Motion
(Defs.’s Mot. to Stay, ECF No. 12.)
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BACKGROUND2
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This action arises from a dispute over insurance coverage
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for a fire that took place on September 16, 2008, in a warehouse
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on a property in Galt, California, owned by Defendants.
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caused property damage and two fatalities.
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actions were brought against Defendants in state court, as
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indicated above.
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Defendants with wrongful death based on general negligence and
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premises liability.
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Defendants with wrongful death, personal injuries, and loss or
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property based on theories of general negligence, premises
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liability and products liability.
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The fire
As a result, two tort
The first action, the Gonzalez action, charges
The second action, the Hung action, charges
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Because oral argument will not be of material assistance,
the court ordered this matter submitted on the briefs. E.D. Cal.
Local Rule 230(g).
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The factual assertions in this section are based on the
allegations in Plaintiff’s Opposition to Defendants’ Motion to
Stay, unless otherwise specified. (See Pl.’s Opp’n, ECF No. 17.)
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At the time of the fire, a policy of liability insurance was
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in effect for the home that was located on the Galt property.
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That policy was issued by Plaintiff to Defendants.
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additional homeowners insurance policies were also issued by
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Plaintiff to Defendants.
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defense to Defendants for both underlying actions, subject to a
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full reservation of rights. The reservation of rights includes
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the right to seek a declaratory judgment that Plaintiff has no
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duty to defend or indemnify Defendants under any of the policies
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Two
As such, Plaintiff is providing a
issued to them.
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According to Plaintiff, at the time the insurance policies
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were issued, Defendants failed to disclose both the existence of
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the warehouse and the fact that business activities were being
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conducted there.
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misrepresentations by Defendants, it is entitled to rescind the
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insurance policies it issued to Defendants.
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alleges that it is not obligated to defend Defendants against the
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tort actions brought in state court because the warehouse does
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not qualify as an insured premises as required for coverage to
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exist under the policies.
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its policies do not cover injuries or property damage arising
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from business activities conducted on an insured location.
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Finally, Plaintiff alleges that its policies do not cover
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injuries arising out of the conduct of a partnership or joint
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venture.
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Plaintiff alleges that, due to these material
Plaintiff also
Furthermore, Plaintiff alleges that
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Defendants assert that there is an overlap of the factual
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issues to be decided in the present declaratory judgment action
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and in the underlying actions in state court, and that the
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overlap constitutes prejudice that requires a stay of the present
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action for declaratory relief until the underlying state tort
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actions have concluded.
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now before this Court.
Defendants’ Motion to Stay is therefore
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STANDARD
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The power to issue a motion to stay derives from a federal
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district court’s power to control its docket and ensure that
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cases before it are justly determined.
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Grocers of Cal., Ltd., 593 F.2d 857, 864-65 (9th Cir. 1979),
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cert. denied, 444 U.S. 827 (1979).
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with propriety, find it is efficient for its own docket and the
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fairest course for the parties to enter a stay of an action
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before it, pending resolution of independent proceedings which
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bear upon the case.”
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the separate proceedings are judicial, administrative, or
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arbitral in character, and does not require that the issues in
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such proceedings are necessarily controlling of the action before
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the court.”
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in deciding whether to issue a stay.
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v. Molinaro, 889 F.2d 899, 902 (9th Cir. 1989).
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Id.
Levya v. Certified
Indeed, “a trial court may,
Id. at 863-64. “This rule applies whether
A federal district court has broad discretion
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Fed. Sav. & Loan Ins. Corp.
ANALYSIS
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Whenever an insurer defends a third-party action against its
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insureds under a reservation of rights, “an a-typical insurer-
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insured relationship is created.... [F]actual determinations made
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in the coverage case, were that to be litigated first, could be
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binding in the third-party action to the disadvantage to the
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insured.”
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1075, 1091 (D. Or. 2001).
Home Indem. Co. v. Simson Lumber Co., 229 F. Supp. 2d
Thus, under California law, when an
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insurer seeks a declaratory judgment under an insurance policy
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and there is an underlying third-party action against the
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insureds, a stay of the declaratory judgment action pending
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resolution of the underlying third-party suit is appropriate
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“when the coverage question turns on facts to be litigated in the
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underlying action.”
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(Montrose I), 861 P.2d 1153, 1162 (1993).
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such cases serves to “eliminate the risk of inconsistent factual
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determinations that could prejudice the insured.”
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factual inconsistencies may arise “because the [insurer’s] duty
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to defend frequently turns on coverage, and...coverage frequently
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turns on factual issues to be litigated in the third party
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liability action.”
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in California have followed the Montrose rule.
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Co. v. Parker, Kern, Nard & Wenzel, 1:09-CV-00257 AWI GSA, 2009
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WL 2914203, at *4 (E.D. Cal. Sept. 9, 2009) (citing Cort v. St.
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Paul Fire & Marine Ins. Cos., 311 F.3d 979 (9th Cir. 2002);
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Conestega Servs. Corp. v. Exec. Risk. Indem., 312 F.3d 976 (9th
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Cir. 2002)).
Montrose Chem. Corp. v. Super. Ct.
Granting a stay in
Montrose I, 861 P.2d at 1164.
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Id.
Such
Federal courts
OneBeacon Ins.
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Courts have noted three major concerns surrounding the trial
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of coverage issues which necessarily turn upon the facts to be
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litigated in the underlying action.
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supposed to be defending the insured and with whom the insured
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has a special relationship, is effectively attacking its insured
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and thus aiding the claimant in the underlying suit.
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Inc. v. Super. Ct., 33 Cal. App. 4th 963, 979 (1995) (citing
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Montrose Chem. Corp. v. Super. Ct. (Montrose II), 25 Cal. App.
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4th 902, 910 (Cal. App. 4th 1994)).
First, the insurer, who is
Haskel,
In order to guard against
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such abuse, the Court must not permit the insurer to effectively
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join forces with the third-party claimants in order to defeat
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coverage.
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Montrose II, 25 Cal. App. 4th at 909-10.
Second, litigating the coverage dispute while the underlying
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action is still pending requires the insured to “fight a two
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front war, litigating not only with the underlying claimant, but
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also expending precious resources fighting an insurer over
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coverage questions.”
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(citing Montrose II, 25 Cal. App. 4th at 910).
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two front war “effectively undercuts one of the primary reasons
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for purchasing liability insurance.”
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Haskel, Inc., 33 Cal. App. 4th at 979
Fighting such a
Id.
Third, “there is a real risk that, if the declaratory relief
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action proceeds to judgment before the underlying action is
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resolved, the insured could be collaterally estopped to contest
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issues in the latter by the results in the former.”
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Montrose II, 25 Cal. App. 4th at 910).
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Id. (citing
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“It is only when there is no potential conflict between the
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trial of the coverage dispute and the underlying action that an
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insurer can obtain an early trial date and resolution of its
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claim that coverage does not exist.”
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4th at 910 (emphasis added).
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exists, a district court should enter a stay.
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the coverage question is logically unrelated to the issues of
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consequence in the underlying judgment, the declaratory relief
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action may properly proceed to judgment.”
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Montrose II, 25 Cal. App.
When such a potential conflict
“By contrast, when
Montrose I, 861 P.2d
at 1162.
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In the present case, there are two underlying tort suits
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pending against Defendants in Sacramento Superior Court.
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(Defs.’s Mot. to Stay, 14:6, ECF No. 12.)
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Defendants in these actions under a reservation of rights.
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Opp’n, 3:5, ECF No. 17.)
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actions hinges on the underlying plaintiffs establishing that
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Defendants knew or should have known that the warehouse on the
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Galt property was being used for business purposes, and that the
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decedents were living on the premises.
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14:12-14, ECF No. 12.)
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knowledge of the nature and scope of the underlying plaintiffs’
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business activities or that the underlying plaintiffs used the
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warehouse as a residence.
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No. 12.)
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defrauded by the underlying plaintiffs, and that the underlying
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plaintiffs are legally responsible for the deaths and damages
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claimed.
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Plaintiff is defending
(Pl’s
Defendants’ liability in the underlying
(Defs.’s Mot. to Stay,
Defendants seek to prove that they had no
(Defs.’s Mot. to Stay, 14:8-10, ECF
Furthermore, Defendants seek to prove that they were
(Defs.’s Mot. to Stay, 14:10-11, ECF No. 12.)
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Plaintiff asserts that it will only litigate two issues in
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its action for a declaratory judgment before the underlying
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actions are concluded: (1) that the warehouse does not qualify as
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an “insured premises” or as an “insured location” under the
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various insurance policies; and (2) that Defendants failed to
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disclose the existence of the warehouse on the property and the
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fact that business activities were being conducted in the
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warehouse. (Pl’s Opp’n, 8:10-15, ECF No. 17.)
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that it will refrain from asserting coverage defenses based on
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the business pursuits exclusion, the partnership exclusion, and
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the professional services exclusion.
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No. 17.)
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pursue through this action can be decided without conducting
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discovery or litigating any disputed issues in the underlying
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action.
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Plaintiff claims
(Pl’s Opp’n, 1:14017, ECF.
Plaintiff further claims that the two issues it will
(Pl’s Opp’n, 9:13, ECF No. 17.)
Plaintiff’s asserted limitations to the scope of the present
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action thread the needle too finely.
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Defendants failed to disclose to Plaintiff that business
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activities were being conducted in the warehouse still requires
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litigating whether Defendants knew that such activities were
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being conducted in the warehouse.
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fact at issue in the underlying action.
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that the declaratory judgment and rescission actions may be
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litigated solely on the basis on uncontroverted facts,
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Defendants’ knowledge of the activities taking place within the
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warehouse is clearly a fact in controversy in both the present
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action and the underlying third-party lawsuits.
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Litigating whether
Defendants’ knowledge is a
While Plaintiff contends
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Making a factual determination of Defendants’ knowledge in the
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present action could be binding in the third-party action to the
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disadvantage of Defendants.
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Furthermore, each of the concerns that favor the Court
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entering a motion to stay are present in this case.
First,
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Plaintiff, who is supposed to be defending Defendants in the
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underlying tort actions in state court, is effectively attacking
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Defendants’ defenses and counter-claims in the tort actions and,
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in doing so, Plaintiff may aid the claimants in the underlying
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suit.
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the third-party claimants to defeat coverage.
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Defendants to litigate the coverage dispute with Plaintiff while
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the underlying tort actions are still pending would require
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Defendants to fight a two front war.
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Plaintiff’s theories for rescission and the claims pending
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against Defendants in the underlying action, there is a real risk
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that if the declaratory action proceeds to judgment before the
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underlying action is resolved, Defendants could be collaterally
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estopped to contest issues in the underlying action due to
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findings made by this Court in this lawsuit.
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The Court will not permit Plaintiff to join forces with
Second, requiring
Third, in light of
Given the foregoing, a potential conflict clearly exists
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between the trial of the coverage dispute in this Court and the
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underlying state court action.
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turns on facts to be litigated in the underlying action,
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Defendants’ Motion to Stay will be granted.
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Because the coverage question
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CONCLUSION
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Following consideration of the circumstances of this matter
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as a whole, the Court in its discretion finds that Defendants’
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request for a stay of these proceedings is appropriate, pending
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resolution of the concurrent tort actions pending against them in
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state court.
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accordingly GRANTED.
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underlying tort actions against Defendants are concluded.
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Defendants’ Motion to Stay (ECF No. 12) is
The stay shall remain in effect until the
Staying this proceeding as to Defendants Roberts will also
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stay the action as to the remaining Defendants.
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participation of Defendants Roberts, the ability of the various
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other Defendants to properly defend this case may be hindered.
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stay as to Defendants Garcia, Hernandez, Hung, Gonzalez, and
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Allstate Insurance Company, in addition to the Robertses, is
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therefore also necessary, and the present matter is stayed in its
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entirety pending resolution of the underlying actions in state
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court.
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Absent
IT IS SO ORDERED.
Dated: June 20, 2011
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_____________________________
MORRISON C. ENGLAND, JR.
UNITED STATES DISTRICT JUDGE
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