NOT RECOMMENDED FOR FULL-TEXT PUBLICATION
File Name: 06a0887n.06
Filed: December 8, 2006
No. 05-6944
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
WEST AMERICAN INS. CO., ) ON APPEAL FROM THE
) UNITED STATES DISTRICT
Plaintiff-Appellee, ) COURT FOR THE EASTERN
) DISTRICT OF KENTUCKY
v. )
) OPINION
RICHARD H. PREWITT, )
)
Defendant-Appellant. )
BEFORE: KEITH, COLE, Circuit Judges and STEEH, District Judge.*
R. GUY COLE, JR., Circuit Judge. West American Insurance Company (“West
American”) brought an action for declaratory relief against Richard H. Prewitt in the Eastern District
of Kentucky. West American argues that, because of an exclusion provision in Prewitt’s
homeowner’s insurance policy, it has no duty to defend or indemnify Prewitt in a state-tort action
based on a sailing accident that occurred while Prewitt was at the helm of a sailboat owned by his
friend Dr. Robert Hensley. The district court exercised jurisdiction over West American’s
declaratory relief action. The court determined that the exclusion provision in Prewitt’s insurance
policy applied and granted summary judgment for West American, concluding that West American
had no duty to defend Prewitt in the state action. For the following reasons, we AFFIRM the district
*
The Honorable George Caram Steeh, United States District Court Judge for the Eastern
District of Michigan, sitting by designation.
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W. Am. Ins. Co. v. Prewitt
court’s exercise of jurisdiction over the declaratory relief action and the court’s grant of summary
judgment for West American.
I. FACTS
On June 10, 2003, Hensley and Prewitt, friends since the 1970s, set sail on Hensley’s boat
heading south on the Atlantic Ocean toward the Dry Tortugas. On July 1, 2003, at around 1:00 am,
the sailboat ran aground on the Carysfort Reef off the coast of Key Largo, Florida. Prior to the
accident, on the night of June 30, 2003, Hensley was at the helm for five hours. After completing
his shift, Hensley relinquished control of the boat to Prewitt with specific instructions on what course
to sail. Prewitt testified that Hensley told him to “sail a course of 200 degrees to 210 degrees and
leave the lighthouse [on Carysfort Reef] to starboard.” (Joint Appendix “JA” 143.) This was the
first time during the trip that Hensley had ever given Prewitt a specific course to sail. After realizing
that the course set by Hensley was taking them directly toward the reef, Prewitt adjusted the boat’s
course to a heading of 200 degrees. The adjustment was not enough and the boat ran aground on the
reef. At the time of the accident, the sailboat was uninsured.
In October of 2003, Hensley filed a negligence action against Prewitt in the Circuit Court for
Clark County in Kentucky. At the time of the accident, Prewitt had a homeowner’s insurance policy
with West American which insured him against liability for damage to the property of third parties,
subject to certain exclusions. Pursuant to the policy, West American conditionally agreed to defend
Prewitt in the negligence action but reserved the right to determine whether Prewitt’s policy covered
the accident. Exclusion 2(c) in Prewitt’s policy states that personal liability coverage does not
extend to “property damage to property rented to, occupied or used by or in the care of the insured.”
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(JA 32.)
West American filed a declaratory judgment action on November 15, 2004, seeking a
declaration that Prewitt’s homeowner’s policy did not cover the damage to Hensley’s boat and did
not require West American to pay Prewitt’s litigation costs in the state-court action. The district
court concluded that it was appropriate to exercise jurisdiction over the declaratory judgment action
by West American. In reaching its decision, the district court considered the five factors this Court
has set forth for assessing the propriety of a federal court’s exercise of jurisdiction in suits for
declaratory relief:
(1) whether the judgment would settle the controversy; (2) whether the declaratory
judgment action would serve a useful purpose in clarifying the legal relations at
issue; (3) whether the declaratory remedy is being used merely for the purpose of
procedural fencing or to provide an arena for a race for res judicata; (4) whether the
use of a declaratory action would increase the friction between our federal and state
courts and improperly encroach on state jurisdiction; and (5) whether there is an
alternative remedy that is better or more effective.
Scottsdale Ins. Co. v. Roumph, 211 F.3d 964, 968 (6th Cir. 2000). The district court also considered
the three additional factors expressed by the Supreme Court in Wilton v. Seven Falls Co., 515 U.S.
277 (1995). The factors, which serve to refine the federalism-focused inquiry under the fourth factor
of the Scottsdale test, are:
(1) whether the underlying factual issues are important to an informed resolution of the
case; (2) whether the state trial court is in a better position to evaluate those factual issues
than is the federal court; and (3) whether there is a close nexus between the underlying
factual and legal issues and state law and/or public policy, or whether federal common or
statutory law dictates a resolution of the declaratory action.
Scottsdale Ins. Co., 211 F.3d at 968. Ultimately, the district court concluded that four out of the five
factors weighed in favor of exercising jurisdiction.
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The district court also granted summary judgment in West American’s favor. The court
found that there were no disputed issues of material fact and that West American’s duty to defend
Prewitt in the state action was dependent on whether Hensley’s boat was in Prewitt’s care, as
dictated by the exclusion provision. The court concluded that “[a]t the time of the accident,
Hensley’s boat was under the supervision of Prewitt, and Prewitt had responsibility for the safety and
well-being of the boat.” W. Am. Ins. Co. v. Prewitt, 401 F. Supp. 2d 781, 786 (E.D. Ky. 2005).
II. DISCUSSION
A. Standard of Review
1. Declaratory Relief Action
This Court reviews a district court’s decision to exercise jurisdiction under the Declaratory
Judgment Act (the “Act”), 28 U.S.C. § 2201(a), for abuse of discretion. Wilton, 515 U.S. at 289
(replacing the de novo standard of review with the abuse of discretion standard); Scottsdale Ins. Co.,
211 F.3d at 967 (applying the abuse of discretion standard to a district court’s exercise of discretion
under the Act). A district court abuses its discretion under the Act “when it relies on clearly
erroneous findings of fact, or when it improperly applies the law or uses an erroneous legal
standard.” Southward v. South Cent. Ready Mix Supply Corp., 7 F.3d 487, 492 (6th Cir. 1993)
(quoting Black Law Enforcement Officers Ass’n v. Akron, 824 F.2d 475, 479 (6th Cir. 1987)). This
Court has further elaborated that a district court abuses its discretion when the “reviewing court . .
. has a definite and firm conviction that the court below committed a clear error of judgment in the
conclusion it reached.” McBee v. Bomar, 296 F.2d 235, 237 (6th Cir. 1961).
2. Summary Judgment
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This Court reviews a district court’s grant of summary judgment de novo. Bender v. Hecht’s
Dep’t Stores, 455 F.3d 612, 619 (6th Cir. 2006). Summary judgment is appropriate “if the pleadings,
depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any,
show that there is no genuine issue as to any material fact and that the moving party is entitled to a
judgment as a matter of law.” Fed. R. Civ. P. 56(c). The moving party bears the burden of proving
that there are no genuine issues of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 322-23
(1986). This burden is satisfied “by demonstrating that the nonmoving party lacks evidence to
support an essential element of its case.” Id. “The mere existence of a scintilla of evidence” that
supports the non-moving party’s claims is insufficient to defeat summary judgment. Hopson v.
DaimlerChrysler Corp., 306 F.3d 427, 432 (6th Cir. 2002).
B. The District Court Properly Exercised Jurisdiction Over West American’s
Declaratory Relief Action
The Act gives district courts discretion over whether to grant declaratory relief in a particular
case. Wilton, 515 U.S. at 288 (explaining that Congress, through the Act, “created an opportunity,
rather than a duty, to grant a new form of relief to qualifying litigants”); Public Affairs Press v.
Rickover, 369 U.S. 111, 112 (1962) (“The Declaratory Judgment Act was an authorization, not a
command.”). The Act states, in relevant part:
In a case of actual controversy within its jurisdiction . . . any court of the United States,
upon the filing of an appropriate pleading, may declare the rights and other legal relations
of any interested party seeking such declaration, whether or not further relief is or could be
sought.
28 U.S.C. § 2201(a). A district court examines five factors in determining whether to exercise
jurisdiction over a declaratory relief action.
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Factor 1: Whether a declaratory judgment will settle the controversy
The district court concluded that the first factor weighed in favor of exercising jurisdiction
over West American’s declaratory relief action. The court found that, in this action, a declaratory
judgment would settle the controversy over the scope of insurance coverage. The district court’s
finding is consistent with this Court’s decisions in Northland Insurance Co. v. Stewart Title
Guaranty Co., 327 F.3d 448 (6th Cir. 2003); Allstate Insurance Co. v. Green, 825 F.2d 1061 (6th
Cir. 1987); and State Farm and Casaulty Co. v. Odom, 799 F.2d 247 (6th Cir. 1986)—all cases
where this Court found that a declaratory relief action could settle the insurance coverage
controversy not being addressed in the underlying state action. Further, this Court noted in
Scottsdale that “a prompt declaration of policy coverage would surely ‘serve a useful purpose in
clarifying the legal relations at issue.’” 211 F.3d at 968.
Prewitt argues that this case is similar to Bituminous Casulty Corp v. J & L Lumber Co., 373
F.3d 807 (6th Cir. 2004), a case where this Court concluded that the exercise of jurisdiction over the
declaratory relief action was improper. Bituminous is distinguishable from the present case. In
Bituminous, the issue before the district court was the same issue already being considered in two
state-court proceedings: whether Phillip Shields (the plaintiff in the state action who was injured
while hauling a load of timber from a J & L logging site) was an employee of J & L at the time of
the injury and thus not covered by the insurance policy. 373 F.3d at 813. This Court’s
determination, that exercising jurisdiction was improper, relied heavily on there being a state court
already considering the same issue.
Here, West American seeks a declaration that it has no duty to defend Prewitt in the state
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action based on exclusion 2(c) of the insurance policy. Hensley’s suit against Prewitt in state court,
however, is a tort action, focused on whether Prewitt was negligent in the operation of Hensley’s
sailboat. A determination about the applicability of the exclusion provision, at issue here, turns on
whether Hensley’s boat was being “used by or in the care of” Prewitt at the time of the accident—a
question not before the state court. Therefore, the district court properly concluded that this factor
weighed in favor of exercising jurisdiction.
Factor 2: Whether the declaratory judgment action would serve a useful purpose in
clarifying the legal relations at issue
The district court concluded that the second factor also weighed in favor of exercising
jurisdiction. The second factor refers to clarification of the legal issues in the state case. West
American’s declaratory action would not clarify those issues because the federal-court action deals
only with the scope of insurance coverage, whereas the state-court action is focused on the negligent
operation and maintenance of Hensley’s boat. Nonetheless, the district court concluded that
“[a]nswering the question of whether Prewitt’s insurance policy provides coverage . . . will not
conflict with the state court’s resolution” of the issues before it. (JA 60.)
This Court has held that declaratory relief was a proper remedy in cases where the declaratory
action would clarify only the legal relationship between the insured and the insurer, and would not
clarify the legal relationships in the state action. See, e.g., Odom, 799 F.2d at 250 (finding that a
declaratory judgment was proper because it would clarify the legal relations at issue by settling “the
real and immediate controversy” about whether the insurer must defend the insured in the state
action); Northland Ins. Co., 327 F.3d at 454 (explaining that declaratory relief was proper despite
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the fact that a declaratory judgment would not end the dispute in the state action but would only
settle the dispute over insurance coverage). Further, in Green, this Court explained that the “grant
of declaratory relief in insurance coverage cases undoubtedly settles the controversy over the
insurer’s liability to provide a defense for and/or indemnify its insured, thus clarifying the legal
relations in issue.” 825 F.2d at 1066. Accordingly, the district court did not err in concluding that
exercising jurisdiction over the declaratory relief action was proper because it would clarify the
scope of Prewitt’s insurance coverage.
Factor 3: Whether the declaratory remedy is being used merely for the purpose of
procedural fencing or to provide an arena for a race for res judicata
The district court concluded that the third factor weighed in favor of exercising jurisdiction.
The court explained that “it appears that [West American] merely chose a forum in which to seek
a declaration regarding the scope of coverage to prevent [West American] from further expenditures
of time, energy, and resources in the state court action that, in [West American’s] view, are
unwarranted.” (JA 60.)
In Odom, this Court concluded that the third factor weighed in favor of exercising jurisdiction
because there was “no evidence that State Farm [had] done any more than properly choose the
jurisdiction of federal rather than state court, a choice given by Congress.” 799 F.2d at 250. In
reaching its conclusion, that the case did not “present the appearance of a race for res judicata,” this
Court considered the fact that “Bituminous filed its action in federal court two years after Shields
[the injured employee] filed his initial negligence action against J & L in state court.” Bituminous,
373 F.3d at 814. Similarly, in this case, West American filed its action in federal court
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approximately one year after Hensley filed his state-tort action.1
The liability issues before the state court are distinct from the issue of insurance coverage in
the declaratory relief action. Because the two issues rest on different facts, resolution of one issue
does not preclude the separate adjudication of the other. Further, West American is not a party to
the state suit and the scope of Prewitt’s insurance coverage is not at issue in the state action.
Accordingly, the district court properly determined that the third factor weighed in favor of
exercising jurisdiction.
Factor 4: Whether the use of a declaratory action would increase the friction between our
federal and state courts and improperly encroach on state jurisdiction
The district court found that the fourth factor also weighed in favor of exercising jurisdiction.
In reaching this conclusion, the court considered the three additional sub-factors from Scottsdale
addressing federalism concerns. The district court found that the first sub-factor—whether the
underlying factual issues are important to an informed resolution of the case—weighed in favor of
exercising jurisdiction. Prewitt argues that the underlying state action and the declaratory judgment
action involve the same factual issues, such as: (1) the state of disrepair of certain navigational
equipment on the sailboat, and (2) whether Hensley unilaterally decided to turn off lighting to critical
navigational instruments. The district court, however, found that resolution of these factual issues
was not relevant to the insurance-coverage dispute.
The district court’s conclusion is supported by this Court’s decisions in Odom, Northland
1
Hensley filed his state-court suit against Prewitt on October 14, 2003 and West
American filed its action in federal court on November 15, 2004.
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Insurance, and Green—all cases where this Court concluded that the facts needed to resolve the
insurance dispute were independent of the facts involved in the state-tort action. Further, the facts
that are relevant to the insurance coverage controversy here are not in dispute. As the district court
noted, “Prewitt admits to having been a ‘passenger and guest on the sailboat and even, occasionally
at Hensley’s request, sail[ing] the vehicle.’” (JA 62.) Given Prewitt’s deposition, it is fair to say that
Prewitt sailed the boat more than just “occasionally.” Prewitt testified that he was along on the trip
because Hensley needed someone to help him sail. According to both Prewitt and Hensley, they
were taking turns sailing the boat—“four hours on and four hours off.” Thus, the district court did
not err in finding that the first sub-factor weighed in favor of exercising jurisdiction.
With regards to the second sub-factor—whether the state trial court is in a better position to
evaluate those factual issues than is the federal court—the district court concluded that it also
weighed in favor of exercising jurisdiction because there were no factual disputes. Prewitt argues
that because the discovery process in state court is longer, a state court will be better able to
determine the factual issues. (Appellant’s Br. 22-23.) Prewitt, however, does not point to a specific
reason why he needs a longer discovery period, rather he merely argues that discovery in the state
court is still ongoing while discovery in the district court lasted 90 days. (Id.) Further, the district
court had all the facts necessary to make a determination as to whether Hensley’s boat was in
Prewitt’s care. Disputes over whether certain navigational instruments were in disrepair or whether
necessary lights were turned off to conserve electricity (although the subject of discovery in the state
action) are not relevant to a determination of whether Prewitt’s conduct falls within the language of
the exclusion provision.
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Prewitt also argues that the declaratory relief action involves the same underlying factual
issues pending in the state-tort action. Prewitt’s argument is incorrect. There is very little overlap
between the facts that are relevant to the state-tort action and the facts that are relevant to the
declaratory relief action. Prewitt admits to being at the helm at the time of the accident and to
operating the boat during the trip in alternating four-hour shifts. Prewitt even admits that, except for
the night of the accident, Hensley had previously never given Prewitt a specific course to sail. These
are the only facts relevant to the insurance coverage controversy and they are undisputed. Therefore,
the district court’s conclusion regarding the second sub-factor was correct.
The district court found that the third sub-factor—whether there is a close nexus between the
underlying factual and legal issues and state law and/or public policy, or whether federal common
or statutory law dictates a resolution of the declaratory judgment action—weighed against an
exercise of jurisdiction over the declaratory action. The court correctly noted that “the insurance
coverage issue is governed solely by Kentucky law.”
Ultimately, the district court concluded that despite the absence of Kentucky law interpreting
a similar exclusion, because the other two sub-factors weighed in favor of exercising jurisdiction,
a declaratory judgment is unlikely to create friction between the state and federal courts. Thus, the
court found that, overall, the fourth factor weighed in favor of exercising jurisdiction. This Court
has explained that the existence of an unresolved question of state law does not automatically mean
that the district court cannot exercise jurisdiction over the declaratory action. In Scottsdale, for
instance, this Court noted that “a district court should [not] always turn away a declaratory judgment
action when an undetermined question of state law is presented.” 211 F.3d at 969. Further, in
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Bituminous, a case where this Court found it inappropriate to exercise jurisdiction over the
declaratory action, this Court explained that “a district court should not necessarily refuse to exercise
jurisdiction because a case involves undetermined questions of state law.” 373 F.3d at 815.
Accordingly, we cannot conclude that the district court abused its discretion when it determined that
the fourth factor as a whole weighed in favor of exercising jurisdiction, given that two out of the
three sub-factors also favored an exercise of jurisdiction by the district court.
Factor 5: Whether there is an alternative remedy that is better or more effective
The district court concluded that Kentucky does provide a procedure for a declaration of
rights. Under KRS § 418.040, “[i]n any action . . . wherein it is made to appear that an actual
controversy exists, the plaintiff may ask for a declaration of rights, either alone or with other relief;
and the court may make a binding declaration of rights, whether or not consequential relief is or
could be asked.” The court thus found that the fifth factor weighed against an exercise of
jurisdiction. In Bituminous, this Court noted that “a superior alternative remedy exists in the form
of an indemnity action filed at the conclusion of the underlying state action.” 373 F.3d at 816. In
this case, the state court is a better forum because there is no federal interest triggered by this
litigation. The action is in federal court based on diversity jurisdiction, there is no federal question
involved, and the federal court is applying state law. Thus, the district court correctly concluded that
the fifth factor weighed against the exercise of jurisdiction.
Because four out of the five factors clearly weigh in favor of the district court’s exercise of
jurisdiction, we conclude that the district court did not abuse its discretion in exercising jurisdiction
over West American’s action for declaratory relief.
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C. Summary Judgment for West American Was Appropriate
The district court correctly granted summary judgment for West American, finding that there
were no disputed issues of material fact. The court found that the following facts were not in
dispute: (1) the time-line of the accident; (2) the parties shared time at the helm into four-hour shifts;
(3) at the time of the accident, Prewitt was steering the sailboat and Hensley was asleep below deck;
(4) Prewitt was responsible for setting the course to sail during his four-hour shift at the helm; (5)
Prewitt was not required to consult Hensley if it was necessary to make a change to the sailboat’s
course because of an unexpected condition; and (6) on the night of the accident, Hensley gave
Prewitt a specific course to follow.
The district court concluded that the exclusion provision in Prewitt’s insurance policy applied
because Hensley’s boat was in Prewitt’s “care,” as required by the provision. The district court
reasoned that, because Hensley was asleep at the time of the accident, the only individual responsible
for the boat’s safety at that time was Prewitt, who was at the helm. According to the court, “the
reason that Hensley needed a second person on board for ocean sailing was that he could not be
responsible for the safe operation of the boat twenty-four hours a day.” Prewitt, 401 F. Supp. 2d at
786.
Based on the Kentucky Supreme Court’s decision in Kemper National Insurance Co. v.
Heaven Hill Distilleries, Inc., 82 S.W.3d 869 (Ky. 2002), the district court did not err in concluding
that Hensley’s boat was in Prewitt’s care at the time of the accident. In Kemper, Heaven Hill sold
bourbon to its customers and was still storing the bourbon in its warehouse for those customers when
a fire destroyed the bourbon. Heaven Hill claimed that its insurance policy with Kemper, which
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contained a similar exclusion provision to the one at issue here, covered the losses it suffered from
having to pay damages to its customers for the bourbon that was destroyed. Like the situation in
Kemper (where Heaven Hill’s employees were in control of the bourbon at the time of the fire),
Prewitt was in control of the boat at the time of the accident. It is undisputed that Prewitt was
driving the boat when it crashed into the reef, that Prewitt was solely responsible for the safety of
the boat during his four-hour shifts at the helm, that Prewitt, during those shifts, was free to make
all necessary decisions without first consulting Hensley, and that Hensley was not supervising
Prewitt’s actions while Prewitt was at the helm. The court in Kemper made clear that “[w]here the
terms of an insurance policy are clear and unambiguous, the policy will be enforced as written.” 82
S.W.3d at 873. Therefore, based on the unambiguous meaning of the exclusion provision in
Prewitt’s insurance policy, and undisputed evidence that Prewitt was in control of the boat, not only
at the time of the accident, but on numerous occasions before the accident, the district court properly
concluded that Hensley’s boat was in Prewitt’s care.
III. CONCLUSION
For the reasons set forth above, we AFFIRM the district court’s exercise of jurisdiction over
the declaratory relief action and the court’s grant of summary judgment for West American.
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