Minnesota Federal Court Rejects First to File Rule and Transfers Coverage Litigation to Washington Despite Issuance of Policy in Minnesota
The United States District Court for the District of Minnesota has held that a coverage dispute must be transferred to federal court in Washington, in deference to the insured’s later-filed coverage action pending in that court. Everest Indem. Ins. Co. v. Ro, 2016 WL 4007578 (D. Minn. Jul. 26, 2016). The court also concluded that, under 28 U.S.C. § 1391, venue was improper because no substantial events or omissions giving rise to the claim occurred in the District of Minnesota.
The insured, an investment advisor, sought coverage from the insurer after he was sued by his client in Washington state court. The insurer denied coverage. The insured ultimately settled the underlying action, and sent a letter to the insurer asking the insurer to confirm the reasonableness of the settlement. The insured’s letter also asserted that he intended to bring a cause of action against the insurer pursuant to Washington’s Insurance Fair Conduct Act. The insurer responded, reiterating its position that no coverage was available under the policy and denying that it had engaged in any wrongdoing. The insurer then filed a declaratory judgment complaint in the United States District Court for the District of Minnesota, seeking a judicial declaration that no coverage was available. The insured subsequently filed his own coverage action in the United States District Court for the Western District of Washington, in which he asserted claims against the insurer under Washington’s Insurance Fair Conduct Act and sought a declaration that he was entitled to coverage under the policy.
The court first concluded that the insured maintained substantial contacts with Minnesota sufficient to establish that the court had specific personal jurisdiction over the insured. Nonetheless, the court determined that the matter should be transferred to the Western District of Washington, where the insured’s later coverage action had been filed. The court rejected the application of the “first-filed rule,” which favors the venue chosen by the first party to file, where parallel litigation has been filed in different jurisdictions. The court noted that the first-filed rule can be abrogated under “compelling circumstances,” including where the party that filed the first lawsuit was “on notice” that the opposing party intended to file its own lawsuit imminently, or where the first lawsuit filed was an action for declaratory judgment. The court found that both circumstances were present and, therefore, it need not apply the first-filed rule.
Finally, the court held that transfer of the case was appropriate because venue was improper under 28 U.S.C. § 1391. The court explained that no substantial events or omissions giving rise to the coverage dispute occurred in Minnesota. Although the policy was issued in Minnesota to the investment advising firm with which insured advisor was affiliated, the issuance of the policy did not “give rise” to the dispute. To the contrary, all of the events leading to the coverage dispute occurred in Washington, where the advisor was based and operated and where the advisor sought coverage.