Withdrawal of tender results in dismissal of coverage suit

Where policyholders withdrew their tender after their carriers filed a declaratory judgment action, the suit was not ripe for resolution and was dismissed. Because the court was unpersuaded that the carriers acted in bad faith, wantonly or for other oppressive reasons, or that their decision to bring this action was an abuse of the judicial process, however, the policyholders were denied their attorneys’ fees.

Background

After C. David Venture Management LLC and Venture Street LLC. were named as defendants in a putative class action, they sought coverage from Hanover Insurance Company and The Hanover American Insurance Company. Hanover twice declined coverage and then filed this suit, seeking a declaration that they owe no duty to defend or indemnify defendants in the underlying suit. 

Defendants then notified plaintiffs that they were no longer seeking coverage from plaintiffs for the underlying suit and thereafter affirmed that they had withdrawn their request for coverage from Hanover. Defendants have now filed a motion to dismiss. 

Jurisdiction

The facts of this case do not call for declaratory relief on either the duty to defend or duty to indemnify questions. Critically, defendants no longer seek coverage under the relevant insurance policies for defending against the underlying lawsuit. As a result, there is not a live question regarding plaintiffs’ duty to defend defendants in that litigation. 

Plaintiffs assert that defendants’ motion to dismiss should be denied, in spite of the fact defendants have withdrawn their request for coverage. In support of their argument, Plaintiffs contend that a chain of events could precipitate a live dispute over their duty to defend defendants under the relevant policies, thereby making a judicial declaration on that question ripe for resolution now. Those potential future events are (1) a future amendment of the underlying lawsuit; (2) a determination by defendants that a future amended complaint in that litigation alleges a potentially covered claim; (3) defendants’ filing of a request for coverage from plaintiffs and (4) a denial of coverage by plaintiffs.

Plaintiffs’ alleged injury “is of a hypothetical and contingent nature: the injury may or may not occur[.]” If plaintiffs do not deny defendants coverage in defending against a potential future amended complaint in the underlying lawsuit, or if defendants never again seek such coverage, then a decision from this court concerning plaintiffs’ duty to defend will have no effect. Were the court to interpret the relevant policies’ language regarding a duty to defend at this juncture, such a ruling would be premature and therefore tantamount to an advisory opinion in contravention of Article III.

Similarly, plaintiffs’ duty to indemnify defendants under the relevant policies is not ripe for resolution. Whether defendants should be indemnified by plaintiffs against liability for injuries “would depend in the first place upon whether [defendants] are found to be liable for the” conduct alleged in the underlying lawsuit, but “[that question cannot be answered at this time.” Thus, this court cannot at this time exercise its prerogative under 28 U.S.C. § 2201 to issue a declaratory judgment on the indemnity question. When a case is not ripe for resolution, the court lacks subject-matter jurisdiction over the action.

Attorneys’ fees

Defendants also seek fees related to filing their motion to dismiss. “[A] federal court may award counsel fees to a successful party when his opponent has acted ‘in bad faith, vexatiously, wantonly, or for oppressive reasons.’” In assessing whether attorneys’ fees are warranted, this court remains mindful of the difference between vexatious lawsuits and those that, although unsuccessful, present a colorable claim for relief. 

This case falls into the latter camp. Although plaintiffs have failed to secure the relief they sought in their complaint, this court is unpersuaded that they acted in bad faith, wantonly or for other oppressive reasons, or that their decision to bring this action was an abuse of the judicial process.

Defendants’ motion to dismiss granted.

Hanover Insurance Company v. C. David Venture Management LLC, Case No. 1:21-cv-790, Aug. 30, 2022. EDVA at Alexandria (Alston). VLW 022-3-385. 10 pp.