SOUTHERN DISTRICT FINDS CARRIER ENGAGED IN FORUM SHOPPING: DISMISSES DECLARATORY JUDGMENT ACTION AGAINST INSURED

August 29, 2011

Last Monday, Judge Ellison in the Southern District of Texas dismissed a declaratory judgment action brought by Nationwide against its insured, Lafarge, seeking a determination of its defense and indemnity obligations.  Nationwide Prop. & Case Ins. Co. v. Lafarge, 2011 WL 3702437 (S.D. Tex. 2011) (slip copy).  Lafarge struck a motorcycle, killing both the driver and passenger of the motorcycle.  Following the deadly accident, Nationwide settled the passenger’s estate claim for $1,300,000 in response to a Stowers’ demand against Lafarge.  The driver’s estate then sued Lafarge.  Nationwide sought to avoid liability  for  the  driver’s  estate  claims,  but  Lafarge  argued  that  Nationwide  acted  unreasonably, negligently, and in bad faith in settling the first suit when it knew a second lawsuit was coming.

Nationwide filed a declaratory judgment action against Lafarge in state court while it defended him subject to a reservation of rights in the second suit.  Nationwide moved for summary judgment in state court, which was denied.  Nationwide then filed a nonsuit as to the state court claims.  On the same day, Nationwide filed a nearly identical declaratory judgment action in federal court.  Lafarge moved to dismiss because Nationwide was allegedly engaging in forum shopping.  Finding that “concerns of federalism, fairness, and efficiency weigh heavily against retaining the case” and that “the conduct in which Nationwide has engaged certainly constitutes a litigation practice that should be discouraged,” the court exercised its discretion and dismissed the case.