concurring in part and dissenting in part:
Because I believe the majority opinion establishes a new and improper rule by which to review a district court’s decision to issue a declaratory judgment, I respectfully dissent. However, I concur in part in the result. I would hold that the district court abused its discretion in reaching and deciding the merits of Lloyd’s policy coverage.
The majority concludes that “two significant state interests ... weigh in favor of dismissal.” Op. at 237. The first is the state’s interest in deciding questions of state law, and the second is the state’s interest in resolving all litigation stemming from a single controversy in one court system. By relying on these two state interests, the majority draws a bright line rule that defeats a legitimate use of a federal declaratory judgment action. See Allstate Ins. Co. v. Green, 825 F.2d 1061 (6th Cir.1987) (“[T]he mere existence of a state court proceeding is not determinative of improper federal encroachment upon state court jurisdiction.”). The majority’s reference to the closeness of the state law issues adds little support to its two primary grounds.
The decision to issue a federal declaratory judgment is discretionary, Brillhart v. Excess Insurance Co., 316 U.S. 491, 62 S.Ct. 1173, 86 L.Ed. 1620 (1941); therefore, the task of the appellate court is to review for abuse of that discretion.
I.
Concerning Lloyd’s duty to defend, the district court determined that the issues raised in the instant action are not the same as those raised in the underlying tort action, but are instead independent and separable. The issues raised by this question concern a contractual dispute between the insurer and its insured, whereas the underlying action is a personal injury action by a tenant against her landlord. As such, the issues raised by this question are completely different from those raised by the underlying action. Clearly, the question of Lloyd’s duty to defend could not be decided in the underlying action.
Consequently, I would affirm the district court’s decision to issue a declaratory judgment on this question. The majority’s focus on esoteric questions of a state’s interest fails to explain how the district court’s decision interfered with the state proceeding. In addition, while the state law issues presented may be considered close, they cannot be considered unsettled, and they do not “bear[ ] on policy problems of substantial public import whose importance transcends the results in the case....” Colorado River Water Conser. Dist. v. United States, 424 U.S. 800, 814, 96 S.Ct. 1236, 1244, 47 L.Ed.2d 483 (1976). As such, no exceptional circumstances exist to justify abdication of the obligation to decide the case. See id. at 813, 96 S.Ct. at 1244.
I do not agree, however, with the district court’s decision on the merits. Under Maryland common law, “[ejven if a tort plaintiff does not allege facts which clearly bring the claim within or without the policy coverage, the insurer still must defend if there is a potentiality that the claim could be covered by the policy.” Brohawn v. Transamerica Ins. Co., 276 Md. 396, 408, 347 A.2d 842, 850 (1975) (emphasis in original).
In the instant case, the tort complaint established a potentiality of coverage by alleging that “on or about August 1980,” plaintiff was injured by the ingestion of lead paint, even though the policy was not *242effective until March 19, 1981. See Harford Mut. Ins. Co. v. Jacobson, 73 Md.App. 670, 676, 536 A.2d 120, 123 (1988). Therefore, though the district court properly issued a declaratory judgment on this issue, I would reverse the court’s ruling that Lloyd’s had no duty to defend.
II.
Concerning the district court’s decision to issue a declaratory judgment on the merits of the policy coverage question, I would reverse, but for reasons different than those relied on by the majority. The district court determined that Lloyd’s policy did not apply to the underlying tort action because the “occurrence” predated the term of the policy. The district court conceded that the “occurrence” date of the injury would be addressed in the state proceedings, but considered the potential for interference with the state proceedings to be minimal.
The timing of the injury is relevant to damages and implicates the defenses of statute of limitations and laches. Consequently, when the injury was suffered is likely to be an important issue in the underlying action, and factfinding on this issue is better left to the factfinder in that action. Therefore, “for reasons of wise judicial administration,” the district court abused its discretion in issuing a declaratory judgment on this issue. Colorado River, 424 U.S. at 818, 96 S.Ct. at 1246; see also Brillhart, 316 U.S. 491, 62 S.Ct. 1173.
Instead of reviewing the district court’s decision for abuse of discretion, the majority appears to apply a de novo standard. Indeed, the standard applied by the majority is unclear. Rather than analyze the merits of this action for potential interference with the underlying state action, the majority establishes a new rule that says: “[ajbsent á strong countervailing federal interest,” a district court may not issue a declaratory judgment action involving issues of state law when a related, non-removable action is pending in state court that involves only questions of state law. Op. at 238.
The majority asserts that the state’s interest in deciding the issues in this case is “particularly strong,” whereas, “the only federal interest at issue in this case is the same interest federal courts have in deciding any diversity case.” Id. at 238. By this language the majority implies that there is no meaningful federal interest. However, the federal interest in deciding controversies between citizens of different states and preventing local prejudice from favoring local parties is no small interest and should not be minimized. Indeed, “[t]he power of determining causes ... between citizens of different States[ ] is ... essential to the peace of the Union....” The Federalist No. 80, at 476-77 (Alexander Hamilton) (Clinton Rossiter ed., 1961). Clearly, the Framers of the Constitution considered the federal interest meaningful when they established diversity of citizenship as a basis of federal jurisdiction. U.S. Const, art. Ill, § 2.
Though the majority’s discussion of the substantive issues is brief and diffused, I agree generally that deciding the issue of coverage would unnecessarily entangle the federal action with the state proceeding. Op. at 239-40. For the foregoing reasons, I would reverse the judgment on the merits concerning Lloyd’s duty to defend, and I would reverse the district court’s decision to issue a declaratory judgment on the issue of Lloyd’s policy coverage.