U.S. MAGISTRATE JUDGE RECOMMENDS DISMISSAL OF INSURER’S SUIT AGAINST INSURED REGARDING DISPUTE OVER WITHDRAWN CLAIM FOR DEFENSE AND INDEMNITY
Recently, U.S. Magistrate Judge Susan Hightower issued a report and recommendation to U.S. District Court Judge Lee Yeakel urging the Court to grant the insured’s motion to dismiss for lack of subject matter jurisdiction in a curious case about a withdrawn liability claim. Admiral Ins. Co. v. K&K Roofing and Construction, LLC, No. 1:20-CV-399-LY, 2021 WL 2019201 (W.D. Tex. May 20, 2021) involved a dispute between Admiral Insurance Company (Admiral) and its insured, K&K Roofing and Construction, LLC (K&K), over whether Admiral owed K&K a defense and indemnity in an underlying tort action in which K&K was being sued by the victims of an apartment fire.
In the underlying tort action, the victims of an apartment fire that killed five people and caused injuries to multiple occupants of the apartment complex sued various parties, including K&K, which had performed roofing work on the apartment complex. K&K’s policy with Admiral provided for a defense and indemnity of such bodily injury claims, but the policy period expired on July 20, 2018 at 12:01 A.M. standard time.
The plaintiffs in the suits alleged that the fire broke out at 4:30 a.m. and “in the early hours” of July 20, 2018, so when K&K filed a claim under its Admiral policy for defense and indemnity in those lawsuits, Admiral initially accepted defense coverage and appointed defense counsel to represent K&K under a reservation of rights. Admiral then filed suit in federal court seeking a declaratory judgment that it had no duty to defend or indemnify K&K in the apartment fire lawsuits because the policy had lapsed several hours before the fire broke out, and that it had no duty to indemnify K&K for any future settlement or judgment that may be entered in such lawsuits.
After Admiral filed its motion for summary judgment in the federal court case, K&K sent Admiral a letter formally withdrawing its request for defense and indemnity under the policy and filed a motion to dismiss for lack of subject matter jurisdiction, arguing that the case was now moot given that there was no longer a case or controversy between K&K and Admiral.
Admiral disagreed, claiming that K&K had not established that it would not later seek coverage under the policy for the apartment fire lawsuits, as the lawsuits were still pending. K&K countered, and Judge Hightower agreed, that K&K’s letter “clearly and unequivocally” withdrew its request for defense and indemnity for the apartment fire lawsuits and any other potential future litigation that involved the same facts and circumstances as those in the apartment fire lawsuits. Moreover, K&K represented to the Court that it had done so and stated that it did not reserve the right to seek coverage at a later time.
In turn, Judge Hightower reported that, because a declaratory judgment action in this context “hinges on whether a defendant is actually seeking to obtain coverage under [its] policy” withdrawal of a claim under the policy renders the declaratory judgment action moot, and the Court therefore lacks subject matter jurisdiction. As such, she recommended the Court grant K&K’s motion to dismiss and dismiss Admiral’s motion for summary judgment.