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Allstate Insurance Co. v. Rochkind

United States District Court, D. Maryland

July 15, 2016

ALLSTATE INSURANCE COMPANY, Plaintiff,
v.
STANLEY ROCHKIND, et al., Defendants.

          MEMORANDUM

          Timothy J. Sullivan United States Magistrate Judge.

         This Memorandum addresses the Motion to Dismiss (“Motion”) (ECF No. 46) filed by Defendants Donald Ashby and Shana Ashby (“Defendants”). Having considered the submissions of the parties (ECF Nos. 46, 52 & 53), I find that a hearing is unnecessary. See Loc. R. 105.6. For the reasons set forth below, the Motion is DENIED.

         I. Introduction

         Plaintiff Allstate Insurance Company (“Allstate”) filed its Complaint for Declaratory Judgment (ECF No. 1) in this Court on May 28, 2015, and its Amended Complaint for Declaratory Judgment (ECF No. 38) on February 1, 2016. The Amended Complaint seeks an order declaring that the claims made in two lawsuits[1] pending in Baltimore City Circuit Court (“underlying suits”), as well as any damages that may arise from the claims, are not covered under a certain Allstate policy in which Defendant Stanley Rochkind (“Rochkind”) is the insured. (ECF No. 38 at 6-7.) Defendants Donald Ashby and Shana Ashby have been named as defendants in this case because they are the plaintiffs in the underlying suits. The underlying suits allege that Rochkind and other defendants are liable for the Defendants’ contraction of harmful elevated blood lead levels due to lead paint exposure at a residence in Baltimore City (“the residence”) that was “owned, operated, and controlled by” Rochkind and others. (Id. ¶ 9.)

         Allstate is not a party in the underlying suits, but may be required to defend and indemnify Rochkind in the suits under the terms of a certain insurance policy. Specifically, Allstate issued a Personal Umbrella Policy (“Policy”) to Rochkind that provided “personal liability coverage to Rochkind during [Defendants’] alleged dates of exposure.” (Id. ¶ 13.) The Policy provides coverage to Rochkind for personal injuries to others arising out of the “personal activities of an insured” but not “[a]ctivities related to any business.” (Id. ¶ 18.) The Policy defines “business” as “any full or part-time activity of any kind engaged in for economic gain, ” excluding “the rental or holding of any premises in a . . . . family residence owned or controlled by an insured as a dwelling, office, school or studio.” (Id. ¶ 19.)

         To date, Allstate has “provided a defense to Rochkind” in the underlying suits. (Id. ¶ 20.) According to Allstate’s Amended Complaint, however, discovery has revealed that Rochkind’s only association to the residence is in connection with his business activities. Allstate contends that Rochkind was the partial owner of a business entity that exercised management control over the residence and that his conduct in relation to the residence was a “business activity” under the Policy. (Id. ¶¶ 21-23.) Because the claims in the underlying suits arise out of Rochkind’s business activities, Allstate asserts that the claims are not covered under the Policy. (Id. at 24.) Allstate maintains that it has “no obligation to defend [or] indemnify Rochkind under the Policy” and seeks a declaratory judgment to that effect. (Id.)

         II. Discussion

         A. The Motion to Dismiss

         The Defendants raise four arguments in the Motion. (ECF No. 46-1.) First, that the Amended Complaint should be dismissed because Defendants have established a potentiality of coverage under Maryland law. (Id. at 6-8.) Second, that because Defendants have established a potentiality of coverage, Allstate may not introduce the extrinsic evidence that would be necessary for it to prevail on its request for a declaratory judgment. (Id. at 8-10.) Third, that the issues raised in the Amended Complaint are closely intertwined with the issues in the underlying suits. (Id. at 10-17.) Fourth, that Allstate’s failure to “allege that Rochkind did not have a personal interest in the Subject Property” makes the Amended Complaint insufficient to state a claim upon which relief can be granted. (Id. at 17.) I will address each of these arguments in turn.

         B. Legal Standard

         Rule 12(b)(6) allows a court to dismiss a complaint if it fails to “state a claim upon which relief can be granted.” Fed R. Civ. P. 12(b)(6). “The purpose of a Rule 12(b)(6) motion is to test the sufficiency of a complaint, [and not to] resolve contests surrounding the facts, the merits of a claim, or the applicability of defenses.” Edwards v. City of Goldsboro, 178 F.3d 231, 243 (4th Cir. 1999). A complaint must contain “sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face.” Ashcroft v. Iqbal, 556 U.S. 662, 663 (2009) (internal quotation marks omitted). A complaint must consist of “more than labels and conclusions, and a formulaic recitation of a cause of action’s elements will not do.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 545 (2007). When considering a motion to dismiss, a court must accept as true the well-pled allegations of the complaint and “construe the facts and reasonable inferences derived therefrom in the light most favorable to the plaintiff.” Ibarra v. United States, 120 F.3d 472, 474 (4th Cir. 1997).

         C. The Declaratory Judgment Act

         Under the Declaratory Judgment Act, a district court “may declare the rights and other legal relations of any interested party seeking such declaration, whether or not further relief is or could be sought.” 28 U.S.C. § 2201(a). The Declaratory Judgment Act is “an enabling Act, which confers a discretion on the courts rather than an absolute right upon the litigant.” Wilton v. Seven Falls Co., 515 U.S. 277, 287 (1995). In general, a district court should entertain a declaratory judgment action “when the judgment will serve a useful purpose in clarifying and settling the legal relations in issue, and . . . when it will terminate and afford relief from the uncertainty, insecurity, and controversy giving rise to the proceeding.” Penn-America Ins. Co. v. Coffey, 368 F.3d 409, 412 (4th Cir. 2004) (internal quotation marks omitted). When a related state court proceeding is pending, however, a court must consider four factors (the “Nautilus factors”) in determining whether to proceed with the declaratory judgment action in federal court:

(1) whether the state has a strong interest in having the issues decided in its courts; (2) whether the state courts could resolve the issues more efficiently than the federal courts; (3) whether the presence of “overlapping issues of fact or law” might create unnecessary “entanglement” between the state and federal courts; and (4) whether the federal action is mere ...

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