United States Court of Appeals
For the First Circuit
No. 00-1521
HARTFORD FIRE INSURANCE COMPANY,
Plaintiff, Appellant,
v.
RHODE ISLAND PUBLIC TRANSIT AUTHORITY,
Defendant, Appellee.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF RHODE ISLAND
[Hon. Mary M. Lisi, U.S. District Judge]
Before
Boudin, Circuit Judge,
Bownes, Senior Circuit Judge,
and Stahl, Circuit Judge.
John A. Donovan, III with whom Robert H. Gaynor and Sloane
& Walsh, LLP were on brief for appellant.
James E. Kelleher with whom Revens, Lanni, Revens & St.
Pierre was on brief for appellee.
December 5, 2000
BOUDIN, Circuit Judge. At issue on this appeal is the
refusal of the district judge, as a matter of discretion, to
entertain a declaratory judgment action brought by the Hartford
Fire Insurance Company against the Rhode Island Public Transit
Authority ("RIPTA"). Hartford insures RIPTA under a commercial
general liability policy. The pertinent background of this
appeal are two different actions brought against RIPTA in state
court by individuals injured by RIPTA buses, Jean Kelly and
Robert Heckman. These cases in turn gave rise to two further
lawsuits by Hartford against RIPTA in federal court.
The first accident occurred on June 8, 1995, when a
pedestrian, Jean Kelly, was badly injured by a RIPTA bus in
Cranston, Rhode Island. She then sued RIPTA in Rhode Island
Superior Court. Kelly v. RIPTA, C.A. No. 95-4588 (Providence
Super. Ct.) ("the Kelly case"). In an amended complaint
incident to a second trial, Kelly charged not only negligence in
the operation of the bus (counts I, II, and V), but also
negligence by RIPTA in maintaining the bus "turnaround" station
where the accident occurred (count III) and breach of common
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carrier duty of care (count IV).1 RIPTA notified Hartford of
Kelly's lawsuit.
The liability policy issued by Hartford to RIPTA
contained the usual obligations to pay damages adjudged against
RIPTA (the duty to indemnify), and to defend any suit seeking
such damages (the duty to defend). However, a provision in the
policy excluded coverage for bodily injury or property damage
"arising out of the ownership, maintenance, use or entrustment
to others" of any motor vehicle designed for travel on public
roads.
Although Hartford assigned defense counsel to represent
RIPTA, it also sent a reservation of rights letter stating that
the counts alleging negligent operation of the bus were outside
the policy. It later amended the letter to reserve its right to
deny coverage to RIPTA for all of the claims, on the ground that
Kelly's injuries ultimately arose out of RIPTA's ownership and
use of a motor vehicle. Trial in the state court began on
February 9, 1998, and the jury returned a verdict for RIPTA on
the three negligent operation of a motor vehicle counts and for
Kelly on the premises maintenance and common carrier counts.
1Apparently the breach of common carrier duty count did not
specify the conduct constituting the breach but, based on the
jury's later verdict, it appears that the count was read to
embrace the negligent maintenance of premises claim.
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On February 20, 1998, Hartford filed a complaint in the
federal district court in Rhode Island seeking a declaratory
judgment that it owed RIPTA no duty under the policy either to
defend or to indemnify RIPTA in the Kelly case. On summary
judgment, the district court held that the motor vehicle
exclusion clause negated any duty of Hartford to indemnify,
regardless of the way the counts were framed, because the
accident grew out of the operation of the bus. Hartford Fire
Ins. Co. v. RIPTA, C.A. No. 98-094ML, slip op. at 15-16 (D.R.I.
Mar. 31, 1999) ("the Hartford (Kelly) case").
However, the district court also held that under Rhode
Island precedent, the premises negligence and common carrier
counts in the Kelly state-court complaint did trigger Hartford's
duty to defend RIPTA. Hartford (Kelly), slip op. at 10-11. The
district court held that in Rhode Island, the insurer's duty to
defend is tested by mechanically comparing the policy and the
pertinent count of the complaint; and if the complaint alleges
facts even arguably within the risk coverage in the policy, the
insurer has a duty to defend regardless of the actual facts or
the case's ultimate outcome. Id. at 7-8. The court deemed the
premises negligence and common carrier counts sufficiently
distinct from the policy exclusion to impose a duty to defend.
Id. at 10-11.
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RIPTA appealed to this court, arguing that Hartford did
have a duty to indemnify on the "premises" counts because its
original reservation of rights letter had not named those counts
as excluded from coverage. This court rejected RIPTA's appeal
in a per curiam opinion relying on the reasoning of the district
court. Hartford Fire Ins. Co. v. RIPTA, Nos. 99-1525 & 99-1637,
2000 WL 231253 (1st Cir. Feb. 14, 2000) (per curiam). Hartford
had taken a cross-appeal challenging the district court's
decision that Hartford had a duty to defend in Kelly; but this
was dismissed as moot--it appears that the Kelly case had come
to an end so that the duty to defend was deemed of no further
consequence.
We now turn to the second accident which occurred on
February 3, 1996, when a RIPTA bus struck Robert Heckman while
he was entering his car on a street in Providence, Rhode Island.
In August 1997, Heckman filed a lawsuit against RIPTA in Rhode
Island Superior Court. Heckman v. RIPTA, C.A. No. 97-3839
(Providence Super. Ct.) ("the Heckman case"). As amended in
January 1999, Heckman's complaint sought to hold RIPTA liable
for the driver's negligence in operating the bus (count II), but
also charged RIPTA with negligent entrustment (count III),
negligent hiring (count IV) and negligent supervision, training
and assignment (count V).
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Hartford received notice of the Heckman suit in
February 1999 and issued a denial letter advising RIPTA that the
Heckman claims were excluded by the policy's motor vehicle
exclusion. RIPTA responded by asserting that each of the
negligence claims, other than negligent operation, were covered
by the policy and that Hartford's coverage position was taken in
bad faith. Hartford says that RIPTA threatened to bring suit in
federal court if Hartford did not take responsibility for
defending the case.
Hartford sent a reservation of rights letter to RIPTA
agreeing to provide counsel but reserving its right to disclaim
coverage, to withdraw from the defense at any time, and to seek
reimbursement from RIPTA for defense costs if the exclusion were
found to apply. Hartford then brought the present action in the
federal district court on July 9, 1999, seeking a declaration
that it had no duty to indemnify in the Heckman case and that it
had a right to withdraw from further representation and to
recover money spent on the defense to date in that case.
Heckman v. RIPTA, C.A. No. 99-326ML, slip op. at 1 (D.R.I. Mar.
14, 2000) (the "Hartford (Heckman) case").
In this new action, Hartford filed a motion for summary
judgment which RIPTA opposed on the merits. On March 14, 2000,
the district court entered an order "declin[ing] to exercise its
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jurisdiction over this declaratory judgment action." Hartford
(Heckman), slip op. at 1. The district court said that under
well-established law, a declaratory judgment action would be
justified if useful to clarify and settle legal relations and to
eliminate uncertainty, insecurity and controversy. It then
continued:
Since this Court has already ruled on
this CGL policy and this exclusionary
provision in Hartford I [i.e., Hartford
(Kelly)], a declaratory judgment would
neither clarify the legal relations in issue
nor afford relief from uncertainty.
Furthermore, the parties in Hartford I
appealed this Court's decision and the court
of appeals affirmed. The purpose of the
Declaratory Judgment Act is to address
unresolved disputes. This Court has already
determined the rights, duties and
obligations to the parties under this same
policy. The Court therefore declines the
invitation to give an encore performance.
Id. at 2-3 (citation omitted).
Hartford now appeals to this court. It concedes that
the decision to entertain a declaratory judgment action under 28
U.S.C. § 2201(a)(1994) is a "discretionary" one, Wilton v. Seven
Falls Co., 515 U.S. 277, 289-90 (1995), but it argues that the
district court has abused its discretion in this case. A
refusal to entertain a suit for declaratory relief is reviewed
for abuse of discretion, id. at 289; DeNovellis v. Shalala, 124
F.3d 298, 313 (1st Cir. 1997), and that concept can encompass
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either an outright mistake of law or a serious misjudgment in
the weighing of pertinent considerations, I.P. Lund Trading ApS
v. Kohler Co., 163 F.3d 27, 33 (1st Cir. 1998).
On appeal, Hartford says that, because of the
differences in the claims made in the Kelly and Heckman state-
court actions, the district court erred in thinking that the
duty to defend in Kelly--that it had found to exist in Hartford
(Kelly)--also established a duty to defend in Heckman. As we
have noted, the claims that triggered the duty to defend in the
Kelly state-court case were the maintenance of premises and
common carrier claims. No such claims have been made in the
Heckman case, and the duty to defend in Heckman turns on the
presence of negligent entrustment, hiring, supervision, training
and assignment.
Because the critical counts in the two cases differ,
no one could properly invoke collateral estoppel, often now
called issue preclusion, to say that the decision in Hartford
(Kelly) controls Hartford (Heckman). See generally Restatement
(Second) of Judgments §§ 17, 27 (1982). And RIPTA makes no such
claim: at oral argument, it agreed that collateral estoppel did
not apply.2 Further, in the district court, RIPTA stressed that
2
One might think that Hartford (Kelly) could have no
preclusive effect on the duty to defend in later cases simply
because mootness, through no fault of Hartford, precluded review
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the counts were different although it urged that the reasoning
in Hartford (Kelly) would, if applied to the admittedly
different counts in Hartford (Heckman), warrant the finding of
a duty to defend. This, seemingly, is what the district court
meant when it said that it declined to give an "encore,"
Hartford (Heckman), slip op. at 3. Of course, a prior decision
may have precedential effect without being preclusive. Barber
v. State Farm Mut. Auto. Ins. Co. (In re Smith), 964 F.2d 636,
638 (7th Cir. 1992) (Posner, J.).
Assuming that the district court correctly understood
Rhode Island law in Hartford (Kelly), it might well follow that
Hartford had a duty to defend at least some of the counts in the
Heckman case. Hartford scarcely troubles to argue to the
contrary. Instead, Hartford, so far as we can tell from its
brief, would like us to decide that the district court was wrong
in Hartford (Kelly) or at least that it overstated the scope of
the duty to defend and that a correct understanding would negate
any such duty to defend in Heckman. Only the latter possibility
matters here, and it cannot be ignored.
on that issue. At common law this was the rule, see Restatement
(Second) of Judgments § 28(1) & cmt. a (1982), but the Supreme
Court in United States v. Munsingwear, Inc., 340 U.S. 36, 39-41
(1950), said that a litigant who wants to avoid collateral
estoppel effect should move to vacate the judgment below, which
Hartford did not trouble to do after our per curiam disposition
of the appeal in Hartford (Kelly).
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Rhode Island law on the scope of the duty to defend is
not a model of clarity. The core meaning of the pertinent
"pleading" test is that an insurer, faced with a claim against
the insured squarely within the coverage of the policy, cannot
refuse to defend the insured merely because it believes that the
facts at trial will show that the injury occurred in some way
that would not be covered.3 The pleading test may also mean that
when one cannot tell what claim is being asserted against the
insured but it may be one covered by the policy--as in the
common carrier count in Kelly--the duty to defend continues, at
least until the scope of the claim is brought into focus. E.g.,
Flori v. Allstate Ins. Co., 388 A.2d 25, 27 (R.I. 1978).
But what happens where the injury assertedly derives
from the operation of a bus but an anterior act of negligence
(e.g., hiring a negligent driver) or contemporaneous conduct
(e.g., badly maintaining a turnaround) is charged in the
complaint? Such a case presents a different problem than the
insurer's denial of facts or a complaint's lack of clarity.
Whether there is a duty to defend depends partly on how one
reads the exclusion and partly on how Rhode Island courts want
3Peerless Ins. Co. v. Viegas, 667 A.2d 785, 787 (R.I. 1995)
(citing Employers' Fire Ins. Co. v. Beals, 240 A.2d 397, 402
(R.I. 1968)); Thomas v. American Universal Ins. Co., 93 A.2d
309, 312 (R.I. 1952).
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to treat multiple-cause problems of this kind. Lacking full
briefing, the answer is not obvious to us.
Certainly a duty to defend may exist even though in the
end there may prove to be no duty to indemnify, see Flori, 388
A.2d at 26; see also 7C Appleman, Insurance Law and Practice §
4684, at 83-85 (Berdal ed. 1979); and Kelly may have been such
a case, partly because the critical counts were drafted to
maintain some (count III) or almost total (count IV) ambiguity
as to just what the plaintiff was alleging. But it is not clear
that the same uncertainty inheres in Heckman; one might in the
end read the critical count in the complaint as
straightforwardly alleging that Heckman was injured because he
was run down by a bus driver who had been negligently hired,
trained, supervised and entrusted with a bus.
If this is what the complaint means, it certainly poses
a legal issue as to coverage, but it is not apparent that
coverage in such a case differs as between the duty to defend
and the duty to indemnify or requires a trial of the underlying
liability case to resolve the coverage issue. Even if the
negligence inhered almost entirely in hiring or training, one
reading of the policy (quite possibly not the only one) could be
that the "arising out of" exclusion applied on the face of the
complaint so as to negate any duty either to defend or to
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indemnify. Cf. Hingham Mut. Fire Ins. Co. v. Heroux, 549 A.2d
265, 266-67 (R.I. 1988). Put differently, the duty to defend
under such a policy may presuppose at least a possible duty to
indemnify.
However, the question on this appeal is not the merits-
-on which we have no firm view--but whether the district court
permissibly declined not to decide the merits. From the
district court's point of view, it had laid down a general
principle in Hartford (Kelly) that it thought told Hartford that
the district court would also find a duty to defend (but not to
indemnify) the Heckman case. Could it be an abuse of discretion
for the district court to decline to repeat itself? In the
peculiar circumstances of this case, we think that it was.
The district court may or may not have been right in
Hartford (Kelly) but the counts in Kelly that were decisive in
creating a duty to defend are not present in Heckman and, as
already noted, there is a possible reading of the policy that
would negate a duty to defend in Heckman. And, even if the
district court's view of the law in Hartford (Kelly) suggests
that it would find a duty to defend in Heckman as well,
Hartford's legal obligation to defend in Heckman does remain
"unsettled" (so far as the federal courts are concerned) until
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this court has spoken (the Supreme Court is unlikely to have
much interest in the merits).
It is possible that the district court did not fully
appreciate that this court had not ruled on the scope of the
duty to defend under Rhode Island law. Just before declining
"to give an encore performance," the district court said that
its own Hartford (Kelly) decision had removed any pertinent
uncertainty and, on appeal, "the court of appeals affirmed."
Hartford (Heckman), slip op. at 3. As already noted, our
affirmance in Hartford (Kelly) was as to the duty to indemnify;
the cross-appeal on the district court's duty-to-defend ruling
was dismissed by us as moot.
Insurers often need immediate guidance as to whether
they have an ongoing obligation to defend: if they refuse, they
may be in breach of contract or worse, and if they accede, they
sometimes find they have prejudiced their position. It is also
unclear how easy it would be for Hartford to obtain a prompt
declaratory ruling in the Rhode Island state courts. Cf.
Fireman's Fund Ins. Co. v. E.W. Burman, Inc., 391 A.2d 99, 101
(R.I. 1978) (courts have "broad discretion" to "deny declaratory
relief" as to insurance coverage); Beals, 240 A.2d at 400-02.
The issue before us would be more difficult if there were
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clearly such a remedy and the district court had refused for
that reason to rule.
Accordingly, we think that the ground on which the
district court based its refusal to entertain the action does
not persuade. On remand, the district court is free to consider
whether there is any other reason, as matters now stand, why the
declaratory judgment action should not be entertained. Assuming
there is none, it is also free to enter a brief opinion denying
relief on the merits, citing Hartford (Kelly), or to address the
merits at greater length with the same or a different result.
The judgment of the district court is vacated and the
matter remanded for further proceedings consistent with this
opinion.
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