Insurance – Dec Action – First-to-File Rule

In an insurer’s declaratory judgment action to determine a corporation’s liability insurance coverage for a personal injury claim, a Harrisonburg U.S. District Court denies the corporation’s motion to dismiss or transfer the action in consideration of a collateral dec action filed by the corporation in an Illinois court.

Pactiv Corp. was sued by Lucas, a mechanical contractor who was injured at the company’s Winchester, Va., plant. Federated Mutual Insurance Co. issued policies pursuant to a contract wherein Lucas was required to obtain liability coverage naming Pactiv as an additional insured. Pactiv sought a defense from Federated, but objected when Federated agreed to defend only under a reservation of rights.

Federated filed a complaint for declaratory judgment in the U.S. District Court for the Western District of Virginia. Pactiv then filed a similar action in the Northern District of Illinois and moved to dismiss or transfer the Virginia action.

According to Pactiv, the balance of convenience and special circumstances – namely Federated’s alleged procedural fencing and forum shopping – both preclude application of the first-to-file rule. The court finds that Pactiv has not made a case that it would be more convenient for this dispute to be heard elsewhere, nor has it demonstrated that Federated misled Pactiv so that Federated could be the first to file. Therefore, the first-to-file rule applies, and Federated’s action has priority. Accordingly, the court denies Pactiv’s motion to dismiss or transfer venue.

Here, as far as the balance of convenience is concerned, the court sees little support for Pactiv’s claim that Illinois is a more convenient or appropriate forum. Lucas contracted with Pactiv to provide services to Pactiv at its Winchester facility; Federated issued the policy to Lucas in Virginia; Lucas was injured at Pactiv’s Virginia facility; Lucas sued Pactiv in this court; because Federated issued the policies to Lucas in Virginia, Virginia law will likely govern the interpretation of those policies; and the dispute essentially involves the interpretation of the two policies, which is unlikely to require witnesses to travel from either of the parties’ corporate nerve centers. On the other side of the convenience scale, Pactiv can point to but one fact: its principal place of business and corporate nerve center is in Illinois. Because Pactiv has not demonstrated that the balance of convenience weighs in favor of its later filed action, the court perceives no practical reason of convenience to dismiss or transfer this suit.

Pactiv also alleges the court should exercise its discretion to dismiss or transfer this action because special circumstances preclude application of the first-to-file rule. Here, this dispute has an obvious connection to this forum and Pactiv has not made a case that Federated engaged in subterfuge in order to win a race to the courthouse so as to cut off Pactiv’s imminent action. Indeed, Federated continued to reiterate its position that it would provide a defense under its reservation of rights, and Pactiv continued to insist that Federated reconsider its position. Federated had made it plain that the parties were at impasse on the question of coverage, the trial date of the personal injury suit was fast approaching, and this court had directed Federated to participate in the mediation of that suit. Under the circumstances, there was no reason why Federated should not seek a definite answer to the unresolved coverage question in this logically appropriate forum.

Federated Mut. Ins. Co. v. Pactiv Corp. (Wilson, J.) No. 5:09cv00073, Feb. 9, 2010; USDC at Harrisonburg, Va. VLW 010-3-063, 9 pp.