LUBBOCK FEDERAL COURT GRANTS INSURER’S MOTION TO DISMISS PREMATURE DECLARATORY JUDGMENT ACTION

The District Court for the Northern District of Texas, Lubbock Division, recently granted a motion to dismiss filed by Sentinel Insurance Company Limited ("Sentinel") and Hartford Insurance of the Midwest ("Hartford").  In Byrd Telecom v. Sentinel Insurance Company, et. al., 5:13-CV-188-C (N.D. Tex)(December 2, 2014)(S. Cummings), Plaintiffs Byrd Telecom and Circle B Electric and Tower sued Sentinel and Hartford seeking  a declaration that Defendants have a duty to defend them against claims arising out of an accident that occurred in Mississippi and a duty to indemnity them in the event of a judgment arising out of the same accident.

This insurance action arose out of a Mississippi workplace accident that resulted in the death of two men. Byrd Telecom and Circle B were allegedly involved in the accident. At the time of the accident, Byrd Telecom and Circle B had insurance policies with Sentinel and Hartford for general liability, worker's compensation, employer liability, and umbrella coverage. On November 27, 2013, the estate and heirs of one of the deceased men filed a wrongful death suit in Mississippi state court against Byrd Telecom, Circle B, and several other defendants. The Mississippi case has not yet been resolved. Sentinel and Hartford accepted the defense of Byrd Telecom and Circle B in that case under a reservation of rights. Plaintiffs filed this case in the 99th Judicial District Court of Lubbock County, Texas, on July 12, 2013, asserting claims for breach of contract and seeking declaratory judgment as to Defendants' duty to defend and indemnify Byrd Telecom and Circle B. Defendants removed the case based on diversity jurisdiction.

Plaintiffs sought a declaration that Defendants have a duty to defend them against claims arising out of the Mississippi accident and a duty to indemnify them in the event of a judgment arising out of the same accident. The basis of the declaratory judgment actions was the fact that Defendants are defending Plaintiffs in the underlying case under a reservation of rights. The Court noted that the purpose of a reservation of rights is to notify the insured of a potential or actual conflict of interest so that the insured may hire their own counsel, if they so choose and that defending a case under a reservation of rights will not breach the duty to defend. The Court then concluded Plaintiffs' declaratory judgment action regarding Defendants' duty to defend is not ripe because there is no actual controversy over this issue because Defendants were currently fulfilling their duty to defend the Plaintiffs in the underlying case. Further, the fact that Defendants are defending Plaintiffs pursuant to a reservation of rights merely means that they reserve the right to dispute their duty to pay a judgment, not that they are disputing their duty to defend the insured. The Court also found that Plaintiffs' declaratory judgment action regarding Defendants' duty to indemnify is also not ripe because there is no judgment against the Plaintiffs and, according to well established Texas law, the issue of Defendants' duty to defend is not justiciable until the underlying case is concluded.

Finally, the Court addressed the breach of contract claim that consisted of one paragraph in the complaint. The claim was based on Defendants' allegedly wrongful termination of an insurance policy. However, under the section titled "breach of contract" in the complaint, they failed to state which policy was terminated or when this termination occurred. Further, in respect to damages, Plaintiffs merely stated that they were left without coverage. The Court concluded that such a general pleading constitutes the type of “bare assertion and legal conclusion that is impermissible under federal law” and that the breach of contract claim should be dismissed. The Court dismissed all claims without prejudice.

Editor’s Note: Christopher Martin and George Lankford of Martin, Disiere, Jefferson and Wisdom were privileged to represent Sentinel Insurance Company Limited and Hartford Insurance of the Midwest in this matter and we take this opportunity to congratulate our clients on this significant win.