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Vaughn v. Certain Underwriters at Lloyd's

United States District Court, D. Maryland

September 11, 2019

TARHONIKA VAUGHN, individually and as personal representative of the Estate of TaRhonda Cromwell, et al.,
v.
CERTAIN UNDERWRITERS AT LLOYD'S, LONDON, subscribing to Certificate/Policy No. WN118339

          MEMORANDUM

          Catherine C. Blake United States District Judge

         Plaintiffs TaRhonika Vaughn, individually and as personal representative of the Estate of TaRhonda Cromwell, Sheana Sade McBridge, Christopher Robin Ervin, Jr., and James McBride filed this action against defendant Certain Underwriters at. Lloyd's, London, seeking a declaratory judgment that Lloyd's insurance policy, Certificate/Policy No. WN118339, provides up to $1, 000, 000 in Professional Liability coverage for the plaintiffs' claims arising out of a 2017 fire at Kozy Kottage assisted living facility. Lloyd's filed a motion to dismiss or, in the alternative, to stay proceedings.[1] For the reasons set forth below, the motion to dismiss or, in the alternative, to stay proceedings will be denied.

         BACKGROUND

         Kozy Kottage operated as an assisted living facility in Maryland, where TaRhonda Cromwell, who was disabled, as well as five other individuals resided. Am. Compl., ECF No. 14, ¶ 6. In March 2017, the Kozy Kottage building caught fire. Id. The six residents, including TaRhonda Cromwell, were injured. Id. At the time of the fire, Kozy Kottage Assisted Living was covered under an insurance policy, issued by defendant Lloyd's. Id. ¶ 5. The insurance policy included Professional Liability coverage to Kozy Kottage and its owner and operator, Tracee Barnes. Id. ¶ 5.

         Ms. Cromwell filed this claim for declaratory judgment on October 31, 2018. Ms. Cromwell later died from her injuries on December 2, 2018. Id. ¶ 6. On January 8, 2019, the plaintiffs filed an amended complaint, substituting the estate of TaRhonda Cromwell as plaintiff (with TaRhonika Vaughn as the personal representative), and adding Ms. Cromwell's surviving children as plaintiffs. Prior to her death, Ms. Cromwell had filed a negligence claim against Kozy Kottage and Tracee Barnes in the Health Care Alternative Dispute Resolution Office of Maryland. Def's Mot. to Dismiss or, in the Alternative, to Stay Proceedings [hereinafter "Defi's Mot. to Dismiss"], Ex. 2, ECF No. 15-3. Ms. Cromwell dismissed that claim on October 11, 2018. Id. Ex. 3, ECF No. 15-4. There is currently no case on the underlying negligence claim pending. Def's Mem. of Law in Supp. of Def.'s Mot. to Dismiss, ECF No. 15-1, at 7.

         At issue in this declaratory judgment action is the policy limit applicable to Ms. Cromwell's claims. Specifically, the plaintiffs request that this court declare that "the insurance policy issued by Defendant Certain Underwriters at Lloyd's, London, subscribing to Certificate/Policy No. WN118339, provides up to $1, 000, 000 in Professional Liability coverage for Plaintiffs claims for injuries and damages arising out of the March 2017 fire at Kozy Kottage's assisted living facility." Am. Compl., ECF No. 14.

         Lloyd's insurance policy issued to Kozy Kottage states, "More than one claim involving the same or interrelated Professional Liability Incidents . . . shall be deemed to constitute a single claim[.]" Id., Ex. A at 10, ¶ 15. Lloyd's claims that the March 2017 fire at Kozy Kottage is a single Professional Liability Incident, so that all claims from it are subject to a $1, 000, 000 cap. Id. ¶ 17. The plaintiffs aver that Lloyd's has already settled the claims of the five other residents, leaving only the remaining 1/6 portion of the $1, 000, 000 cap for the plaintiffs. Id. ¶ 17. The plaintiffs disagree with Lloyd's position, arguing instead that the Professional Liability Incident that caused Ms. Cromwell's damages is different and not interrelated to those incidents that caused injuries to the other residents, so the relevant cap for Ms. Cromwell's claims is the $1, 000, 000 per claim cap, rather than a shared $1, 000, 000 cap for all claims arising out of the fire. Id. ¶ 18.

         Lloyd's has filed a motion to dismiss or, in the alternative, to stay proceedings, arguing that this declaratory judgment action is premature as the issues necessary to decide this coverage action are "intertwined" with the issues in the yet-to-be-filed tort action on the negligence claims. Mem. of Law in Supp. of Def's Mot. to Dismiss, ECF No. 15-1, at 7. Specifically, Lloyd's argues that resolution of this coverage case requires a determination of "whether Lloyd's insureds owed a professional duty of care to Ms. Cromwell" or another kind of tort duty and whether that duty was breached, the same issues that would be decided in a state court action on the underlying tort claims. Id. at 9.

         The plaintiffs disagree, arguing that to resolve this declaratory judgment action, the court need only interpret the insurance policy "and decide whether the Cromwell Claims for breach of professional duties . .. involve 'the same or interrelated Professional Liability Incidents' as the claims made by other injured residents in connection with the fire." Pls.' Opp'n to Def s Mot. to Dismiss [hereinafter"Pls.' Opp'n"], ECF No. 16, at 11.

         STANDARD OF REVIEW

         "The Federal Declaratory Judgment Act gives a federal district court the power, in any 'case of actual controversy within its jurisdiction,' to 'declare the rights and other legal relations of any interested party seeking such declaration, whether or not further relief is or could be sought."' Nautilus Ins. Co. v. Winchester Homes, Inc., 15 F.3d 371, 375 (4th Cir. 1994) (quoting 28 U.S.C. § 2201). However, § 2201 is only an "enabling act" that confers discretion on district courts to determine whether to exercise jurisdiction; it does not confer "an absolute right upon the litigant." See Penn-America Ins. Co. v. Coffey, 368 F.3d 409, 412 (4th Cir. 2004) (quoting Wilton v. Seven Falls Co., 515 U.S. 277, 287 (1995)). "[A] federal court may properly exercise jurisdiction in a declaratory judgment proceeding when three essentials are met: (1) the complaint alleges an 'actual controversy' between the parties 'of sufficient immediacy and reality to warrant issuance of a declaratory judgment;' (2) the court possesses an independent basis for jurisdiction over the parties (e.g., federal question or diversity jurisdiction); and (3) the court does not abuse its discretion in its exercise of jurisdiction" Volvo Constr. Equip. N. Am., Inc. v. CLM Equip. Co., Inc., 386 F.3d 581, 592 (4th Cir. 2004) (citations omitted).

         ANALYSIS

         Actual Controversy: Generally, "a dispute between a liability insurer, its insured, and a third party with a tort claim against the insured over the extent of the insurer's responsibility for that claim is an 'actual controversy' within the meaning of the federal Declaratory Judgment Act, even though the tort claimant has not yet reduced his claim against the insured to judgment." E.g., Winchester Homes, 15 F.3d at 375 n.3 (citing Md. Casualty Co. v. Pac. Coal & Oil Co., 312 U.S. 270 (1941)); Penn-America, 368 F.3d at 414. In Winchester Homes, Penn-America, and Maryland Casualty, the existence of an "actual controversy" was clear because a state court action was pending. When there is no state court action pending, there may still be an "actual, live controversy about the scope of. . . indemnity coverage" when the "threat of litigation ... is both real and imminent. " Nautilus Ins. Co. v. REMAC Am., Inc., 956 F.Supp.2d 674, 681 n.4 (D. Md. 2013).

         Here, while there is no pending state action, the threat of litigation is real and imminent, as the plaintiffs previously filed a claim in the Health Care Alternative Dispute Resolution Office of Maryland, alleging negligence against Kozy Kottage and Tracee Barnes, see Mem. of Law in Supp. of Def.'s Mot. to Dismiss, Ex. 2, ECF No. 15-3, which was dismissed without prejudice on October 11, 2018. Id., Ex. 3, ECF No. 15-4. Further, the parties have ...


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