A Federal District Court Judge in the Northern District of Texas, Dallas Division, recently exercised discretion to decline jurisdiction over an insurer’s declaratory judgment action seeking a declaration that it had no duty to indemnify.  First Mercury Ins. Co. v. Horizon Roofing, Inc., 2013 WL 1481988, Civil Action No. 3:12–cv–03393–O (N.D.  Tex. – Dallas, Apr. 9, 2013). 

The declaratory judgment action filed by First Mercury Insurance Company involved an insurance coverage dispute arising out of an underlying lawsuit in Texas state court by a property owner alleging negligence and breach of contract against Horizon Roofing, Inc.  First Mercury insured Horizon and agreed to defend Horizon in the underlying lawsuit subject to a full and complete reservation of its rights.

In August 2012, before the Texas state court reached a determination of Horizon’s liability in the underling action, First Mercury filed a declaratory judgment action seeking a declaration that it had no duty to indemnify Horizon.  In response, Horizon filed a motion to dismiss, arguing the declaratory judgment action was not ripe for resolution because such resolution was dependent on factual findings and factual development in the underlying suit.

The Court agreed with Horizon that the matter was not ripe for determination stating the case would not be ripe until after the Texas state court’s determination of liability in the underlying suit.  The Court also considered whether “limited circumstances” existed which would make the question of First Mercury’s duty to indemnify justiciable before the Horizon’s liability was determined and found none.  (Under the Griffin exception, “[T]he duty to indemnify is justiciable before the insured’s liability is determined in the liability lawsuit when the insurer has no duty to defend and the same reasons that negate the duty to defend likewise negate any possibility the insurer will ever have a duty to indemnify.”  Farmers Tex. Cnty. Mut. Ins. Co. v. Griffin, 955 S.W.2d 81, 84 (Tex 1997)).

The Court also pointed out that there had been no briefing or arguments by the parties as to whether First Mercury had a duty to defend and, further, First Mercury had agreed to defend Horizon in the underlying lawsuit under a reservation of rights.  Accordingly, the Court found that the case was not ripe and exercised its discretion not to make a declaration as to the duty to indemnify.  The Court then granted Horizon’s Motion to Dismiss for Lack of Subject Matter Jurisdiction and dismissed the action without prejudice.

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