Federal Court Abstains from Declaratory Judgment Action in Favor of Underlying State Court Proceeding

A New Jersey federal court has abstained from exercising jurisdiction over a removed insurance coverage declaratory judgment action where the underlying action was ongoing in state court. Owen v. Hartford Ins. Co., 2014 WL 2737842 (D.N.J. June 17, 2014).  The court did so because the underlying action could have been consolidated with the coverage action, even though the insured had not yet moved to consolidate the two actions at the time of removal.  The opinion can be found here.

An officer of a local service organization allegedly crashed a car into a building, injuring an employee working in the building.  The employee brought a tort claim against the officer in New Jersey state court.  The officer filed a separate declaratory judgment action in state court, seeking a declaration that the organization’s D&O carrier owed coverage.  After the carrier removed the case to federal court, the officer sought to remand the case back to state court.  The officer argued that, had the carrier not removed the case to federal court, he would have moved to consolidate the insurance coverage action with the underlying proceeding, and the federal court should thus abstain from jurisdiction.

The court decided to abstain from hearing the declaratory action and remanded the case to state court.  Citing Third Circuit precedent, the court stated that it should give “substantial weight” to the presumption that it should abstain from jurisdiction over a declaratory judgment action if a parallel state proceeding existed.  The court noted that it was “uncontroversial for New Jersey courts to consolidate an underlying personal injury action with a declaratory [coverage] action.”  Thus, because the insurance issues could “quite clearly” be adjudicated in the underlying litigation, the underlying litigation constituted a parallel proceeding.  The court then held that declining jurisdiction would best serve the interests of avoiding “duplicative” litigation.