In the
United States Court of Appeals
For the Seventh Circuit
No. 08-2887
M EDICAL A SSURANCE C OMPANY, INC.,
Plaintiff-Appellant,
v.
A MY H ELLMAN, et al.,
Defendants-Appellees.
Appeal from the United States District Court
for the Northern District of Indiana, Hammond Division.
No. 4:06-CV-117-AS—Allen Sharp, Judge.
A RGUED O CTOBER 29, 2009—D ECIDED JUNE 21, 2010
Before F LAUM, M ANION, and W OOD , Circuit Judges.
W OOD , Circuit Judge. Dr. Mark Weinberger main-
tained a prosperous ear, nose, and throat practice (com-
monly called “ENT” by people whose first loyalty is not
to J.R.R. Tolkien) in Merrillville, Indiana. Unfortunately,
that was not enough for him; he supplemented his
income by using his practice to defraud numerous insur-
ance companies of millions of dollars. In September 2004,
while vacationing with his wife in Greece, Weinberger
2 No. 08-2887
“went for a run” and did not come back. At the time, it
seemed that Weinberger had no intention of returning
to the United States, in all likelihood because he was
facing $5.7 million in creditor claims and 22 criminal
counts of billing fraud upon his return. The U.S. govern-
ment took various steps, including having an interna-
tional arrest warrant issued, to locate Weinberger. The
parties have informed us that Weinberger was arrested
in Italy in December 2009, he has been extradited to the
United States, and he is now facing health care fraud
charges in the Northern District of Indiana. These facts,
however, are of only peripheral concern to us for the
present case.
Criminal charges are not the only allegations pending
against Weinberger. He is also facing more than
350 medical malpractice claims, most of which were
filed after his disappearance. These claims have been
proceeding through Indiana’s medical malpractice pro-
cess. Weinberger’s medical malpractice insurance carrier,
the Medical Assurance Company, Inc. (“Medical Assur-
ance”), has been conducting his defense, but Weinberger’s
disappearance prompted it to file this suit. The insurance
contracts between Medical Assurance and Weinberger
include a typical cooperation clause, which requires
Weinberger to participate in his defense. Needless to say,
Weinberger was not cooperating during his extensive
European “vacation.” Frustrated, Medical Assurance
brought a declaratory judgment action in federal court in
Indiana asking the court to declare that Weinberger
breached his responsibilities under the contract and
therefore Medical Assurance no longer has a duty to
defend or indemnify him.
No. 08-2887 3
The district court was concerned that such a declara-
tion would intrude too severely on the state medical
malpractice actions. It thought that Medical Assurance
could not show that Weinberger’s lack of cooperation
was prejudicing the company without improperly inter-
fering with the state cases. It therefore decided to
refrain from going forward pending the resolution of the
state court proceedings, and it issued a stay of the
federal proceedings. In this appeal, Medical Assurance
argues that the court erred in doing so and that
it should have proceeded to resolve the merits of the
declaratory judgment action. We conclude that Medical
Assurance is correct. Although district courts enjoy
some discretion over requests for declaratory judg-
ments, that discretion is not unlimited. We therefore
remand this case to the district court with instructions
to lift the stay and to proceed to the merits. In so doing,
the court will be able to take into account Weinberger’s
return to Indiana and any other pertinent developments.
I
Before turning to the specifics of the appeal, we review
the more prosaic facts that led to this litigation. Over
the years, Weinberger saw hundreds of patients, and
not all of them were happy with the care they received.
In June 2004, dissatisfied customers filed the first rele-
vant medical malpractice claims. As mentioned above,
Weinberger vanished in September 2004; by then, only
three cases had been filed. After his disappearance
became public, however, the number of malpractice
claims ballooned to more than 350.
4 No. 08-2887
Indiana’s medical malpractice insurance system is
governed by statute. In 1975, Indiana adopted a compre-
hensive system to regulate medical malpractice insur-
ance and claims. See IND. C ODE §§ 34-18-1-1 to -18-2.
The Medical Malpractice Act (“the Act”) offers certain
benefits, including a limitation on liability, to qualified
providers who meet statutorily-defined requirements,
such as holding malpractice insurance above prescribed
levels. Qualified providers contribute funds to the
Indiana Patient’s Compensation Fund (PCF), which is
then available to pay any damages over the statutory
threshold, as well as damages that the doctor and
his insurance provider fail to pay. See id. §§ 34-18-6-1, -15-3
& -15-4. As the payor of last resort, PCF has an interest
in this case; it is represented by the defendant Commis-
sioner of the Indiana Department of Insurance and Ad-
ministrator of the PCF (an office that was held by
James Atterholt at the time suit was filed, but that is
now filled by Carol Cutter—we refer simply to “the Com-
missioner”).
The Act also introduced a new procedural mechanism
for medical malpractice claims. In brief, it provides that
a medical review panel must issue an opinion on every
medical malpractice claim before that claim may be
pursued in Indiana courts. Id. § 34-18-8-4. Complaints are
filed with the Indiana Department of Insurance (IDOI)
and, after 20 days, any party may request the formation
of a medical review panel, which is made up of three
independent (volunteer) physicians. Id. § 34-18-10-2. The
panel issues an opinion on the merits (e.g., the doctor’s
compliance with the standard of care, causation, damages).
No. 08-2887 5
Id. § 34-18-10-22. The panel’s decision is not binding, but
it is admissible as evidence in the state court action. Id.
§ 34-18-10-23.
We are aware of only four cases in which medical
review panels have rendered opinions on claims against
Weinberger: three concluded that damages should not
be available, and one found substandard care and nonper-
manent injuries. Only those four cases have moved
from the review-panel stage to an actual lawsuit in state
courts. None of the cases has proceeded to judgment.
Weinberger’s absence from the country for more than
five years already has had consequences in these cases;
as a result of his failure to cooperate with the medical
review panel process, the Lake County Superior Court
entered an order in 2006 prohibiting him from testifying
in the medical review panel proceedings or in the sub-
sequent state court trial proceedings. As far as the
record before us shows, its order applies to at least 285
of the pending claims.
Between 1996 and 2004, Medical Assurance provided
professional liability insurance coverage to Weinberger
and his businesses under various policies. The con-
tractual provisions relevant to this appeal are the same
in all of the policies. They provide that Medical
Assurance has a duty to defend and indemnify
Weinberger, but Medical Assurance is relieved of those
duties if Weinberger violates the policy’s cooperation
clause, which is found in Paragraph 5 of the General
Conditions and Requirements for each policy and reads
as follows in relevant part:
6 No. 08-2887
[The insured] must fully cooperate with Medical
Assurance and defense counsel in the investigation,
handling, and defense of the legal proceeding.
[The insured’s] duty to cooperate includes, but is not
limited to:
• When requested, attendance at and prepara-
tion for meetings, hearings, depositions, and
trials;
• Securing and providing evidence and assisting
in obtaining the attendance of witnesses;
• Truthfully and completely informing Medical
Assurance about the facts and circumstances
which surround any professional incident or
legal proceeding and, specifically, the nature of
[the insured’s] acts or omissions, so that Medi-
cal Assurance may correctly assess liability;
• Supplementing the information previously
provided to Medical Assurance or defense
counsel as additional information becomes
known to [the insured].
This clause underlies Medical Assurance’s request for
declaratory relief. We turn now to the procedural
history of that claim in its federal court action.
II
ProNational Insurance Company (“ProNational”) filed
the original complaint in this case on August 1, 2006. On
November 1, 2006, Medical Assurance, an affiliate of
No. 08-2887 7
ProNational, filed an amended complaint in its own
name. Medical Assurance is an Alabama corporation
with its principal place of business in Alabama. It named
as defendants the more than 300 claimants in the
Indiana medical malpractice proceedings, the Commis-
sioner, Weinberger himself (a citizen of Illinois), and four
“Entity defendants” through which Weinberger prac-
ticed: Mark S. Weinberger, MD, PC (an Indiana profes-
sional corporation with its principal place of business in
Merrillville, Indiana); plus three limited liability corpora-
tions—the Nose and Sinus Center, LLC, the Merrillville
Center for Advanced Surgery, LLC, and the Subspecialty
Centers of America, LLC—all of which had Weinberger
as their sole member and were thus Illinois citizens.
(We refer to Weinberger and the Entity defendants col-
lectively as the “Weinberger defendants.”)
Medical Assurance’s amended complaint asks the
court to issue the following declaratory judgment (we
quote here from the document):
1. That Weinberger has failed and refused to assist
and/or cooperate with the defense of the Claims
[meaning the individual malpractice claims];
2. That Weinberger’s failure to assist and cooperate
in the defense of the Claims constitutes a material
breach of the contracts of insurance between the
Weinberger Defendants and Medical Assurance . . . ;
3. That Medical Assurance has been prejudiced by
Weinberger’s failure and refusal to assist and/or
cooperate with the defense of the Claims;
8 No. 08-2887
4. That Medical Assurance is under no obligation to
defend the Claims on behalf of any of the Weinberger
Defendants;
5. That Medical Assurance is under no obligation to
pay any judgments, damages, costs or expenses which
are associated with or arise out of the Claims, or
to indemnify the Weinberger Defendants for any
such amounts;
6. Medical Assurance owes no defense or coverage
under the Policies in connection with the claims
alleged by [one of two named claimants], or any
other Claimants who have asserted “fraud-based”
claims, pursuant to the coverage exclusion contained
in the Policies for such fraud-based claims.
For our purposes, it is possible to carve out a couple
of issues that are not central to this appeal. First is the
request based on the fraud exclusion, which Medical
Assurance did not mention in this court. Second is the
duty-to-indemnify point, which will not be ripe until
liability has been established. See Lear Corp. v. Johnson Elec.
Holdings Ltd., 353 F.3d 580, 583 (7th Cir. 2003) (collecting
cases and applying this rule to a declaratory judgment
action). The district court was aware that the duty-to-
indemnify claim was not ripe, but rather than dismiss
that aspect of the case, it included it in the stay that was
issued. The proper disposition, however, would have
been to dismiss. See Nationwide Ins. v. Zavalis, 52 F.3d
689, 693 (7th Cir. 1995).
This appeal therefore focuses only on Medical Assur-
ance’s duty-to-defend claim. Before the completion of
No. 08-2887 9
discovery and the hearing of summary judgment motions,
the Commissioner asked the district court to stay the
declaratory judgment action until the state proceedings
resolved the underlying liability issues. At the direction
of the district court, a magistrate judge heard arguments
and recommended a stay. The district court accepted
that recommendation and granted the motion to stay,
finding that comity and judicial economy supported
the suspension of the federal court case until the parallel
state proceedings resolved the overlapping factual issues.
III
Before turning to the merits, we need to resolve two
jurisdictional issues. First, the claimant defendants
suggest that the district court may lack subject-matter
jurisdiction over the case. Medical Assurance alleged
jurisdiction based on diversity of citizenship, 28 U.S.C.
§ 1332(a). The question is whether the plaintiff demon-
strated that the parties are of diverse citizenship; no one
contests the existence of more than $75,000 in controversy.
The district court found, and the record supports the
proposition, that Medical Assurance is a citizen of Ala-
bama, since it is an Alabama corporation with its prin-
cipal place of business in Alabama. Medical Assurance
specifically alleged the citizenship of each defendant;
we have reviewed those allegations above. The only
problem comes because the individual defendants, who
are pressing malpractice claims, were described in both
the original and amended complaints “on information
and belief” as citizens of Indiana. No defendant
10 No. 08-2887
asserted that she is a citizen of Alabama. On that basis,
the district court concluded that “[u]nless and until a
Defendant comes forward with such evidence, the Court
will not further consider the Notice of Jurisdictional
Defect.”
“[A]n appellant’s naked declaration that there is diver-
sity of citizenship is never sufficient.” Thomas v. Guards-
mark, LLC, 487 F.3d 531, 533 (7th Cir. 2007). Although we
have said that affidavits alleging citizenship based on
“the best of my knowledge and belief” are, by them-
selves, insufficient to show citizenship in a diversity
case, America’s Best Inns, Inc. v. Best Inns of Abilene, L.P., 980
F.2d 1072, 1074 (7th Cir. 1992), the plaintiff here offered
more than that. Medical Assurance alleged a particular
state of citizenship of each claimant (i.e., Indiana, or
perhaps Illinois); each claimant is pursuing relief under
the Indiana medical malpractice system; and the defen-
dants—who are in the best position to furnish evidence
of their citizenship—have declined the opportunity
to challenge the factual basis of Medical Assurance’s
allegation. Weinberger has not participated in any of
these proceedings, and thus has not proffered any
evidence contradicting the position of Medical Assurance
that the claimants are all citizens of Indiana or Illinois—
and that none is a citizen of Alabama. This is enough
for now; obviously, if information to the contrary
emerges on remand, the district court must stand ready
to re-evaluate its jurisdiction.
Second, defendants challenge appellate jurisdiction. The
district court’s decision to stay its proceedings is not one
No. 08-2887 11
of the interlocutory orders that falls within 28 U.S.C.
§ 1292. If it is appealable at all, it must be because it is
authorized by the final-judgment statute, 28 U.S.C. § 1291.
The closest analogy to a stay of a declaratory-judgment
action is a straightforward stay when a district court
decides to abstain. Abstention-based stay orders are
immediately appealable under Quackenbush v. Allstate
Ins. Co., 517 U.S. 706, 714-15 (1996). See, e.g., Montano v.
City of Chicago, 375 F.3d 593, 598 (7th Cir. 2004); Doctor’s
Assocs. v. Duree, 375 F.3d 618, 622 (7th Cir. 2004). The
district court was quite aware of its discretion under
the Declaratory Judgment Act, 28 U.S.C. §§ 2201-02, see
Brillhart v. Excess Ins. Co. of Am., 316 U.S. 491, 494-95 (1942),
Wilton v. Seven Falls Co., 515 U.S. 277, 286-90 (1995). It
nevertheless labeled its decision to stay its proceedings
as a form of abstention. In so doing, it emphasized the
question whether the Indiana malpractice claims covered
essentially the same ground as the federal case (or as
the court put it, were parallel to the declaratory judg-
ment action). Concluding that the answer was yes, it
stayed the entire action. Whether or not the term “absten-
tion” is optimal here—a question that we address be-
low—we conclude that the district court’s stay is the
kind of order that the Supreme Court had in mind in
Quackenbush, and so we conclude that our appellate juris-
diction is secure.
IV
The declaratory judgment device has been around for
a little less than a century in the United States. In 1922,
12 No. 08-2887
the National Conference of Commissioners on Uniform
State Laws and the American Bar Association published
the Uniform Declaratory Judgments Act, which was to
be a model state law. U NIF. D ECLARATORY JUDGMENTS
A CT, §§ 1 et seq. Twelve years later, Congress adopted the
Federal Declaratory Judgment Act. 28 U.S.C. §§ 2201-02.
The key language in the statute provides: “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.” Id. § 2201(a).
In a sense, the Declaratory Judgment Act is relatively
modest: it is a procedural innovation that does not
expand the jurisdiction of the federal courts. It does not,
and arguably could not, affect the underlying substan-
tive state and federal laws that define the rights of the
parties. See, e.g., Aetna Life Ins. Co. v. Haworth, 300 U.S. 227
(1937) (affirming the constitutionality of the Act, provided
that the court has jurisdiction over an actual case or
controversy); Nashville, Chattanooga, & St. Louis Ry. v.
Wallace, 288 U.S. 249, 261-65 (1933) (applying the same
limitation to the Supreme Court’s review of a Tennessee
state-court decision based on the state’s declaratory
judgment act). A federal court applying the Declaratory
Judgment Act must evaluate the parties’ rights based
on the same body of substantive law that would apply
in a conventional action.
The goal of the Declaratory Judgment Act is to allow
for the efficient resolution of disputes by an early ad-
No. 08-2887 13
judication of the rights of the parties. See, e.g., E. Edelmann
& Co. v. Triple-A Specialty Co., 88 F.2d 852, 854 (7th Cir.
1937) (“It was the congressional intent to avoid accrual
of avoidable damages to one not certain of his rights and
to afford him an early adjudication without waiting
until his adversary should see fit to begin suit, after
damage had accrued.”); 10B C HARLES A LAN W RIGHT,
A RTHUR R. M ILLER, M ARY K AY K ANE, F EDERAL P RACTICE
AND P ROCEDURE § 2751 (3d ed. 1998) (“The remedy made
available by the Declaratory Judgment Act . . . relieves
potential defendants from the Damoclean threat of im-
pending litigation which a harassing adversary might
brandish, while initiating suit at his leisure—or never.
It permits actual controversies to be settled before they
ripen into violations of law or a breach of contractual
duty and it helps avoid a multiplicity of actions by af-
fording an adequate, expedient, and inexpensive means
for declaring in one action the rights and obligations
of litigants.”) (internal quotation marks and footnotes
omitted).
By its terms, the Declaratory Judgment Act gives the
district court the discretion to declare the rights of the
litigants, 28 U.S.C. § 2201(a); it explicitly says that upon a
proper application, the district court “may” declare
the party’s rights. The Supreme Court has consistently
understood this language as discretionary:
By the Declaratory Judgment Act, Congress sought
to place a remedial arrow in the district court’s quiver;
it created an opportunity, rather than a duty, to
grant a new form of relief to qualifying litigants.
14 No. 08-2887
Consistent with the nonobligatory nature of the rem-
edy, a district court is authorized, in the sound
exercise of its discretion, to stay or to dismiss an
action seeking a declaratory judgment before trial or
after all arguments have drawn to a close. In the
declaratory judgment context, the normal principle
that federal courts should adjudicate claims with-
in their jurisdiction yields to considerations of practi-
cality and wise judicial administration.
Wilton, supra, 515 U.S. at 288 (footnote omitted); see
also Brillhart, supra, 316 U.S. at 494-95 (setting the
standard for discretion where parallel state proceedings
are pending). We thus review the district court’s decision
only for abuse of discretion. Wilton, 515 U.S. at 289-90
(“[D]istrict courts’ decisions about the propriety of
hearing declaratory judgment actions, which are neces-
sarily bound up with their decisions about the propriety
of granting declaratory relief, should be reviewed
for abuse of discretion.”); Envision Healthcare, Inc. v.
PreferredOne Ins. Co., No. 09-2019, slip op. at 5 (7th Cir.
May 12, 2010). The question whether an abstention doc-
trine is applicable, in contrast, is something that we
review de novo. See R.R. St. & Co. v. Vulcan Materials Co.,
569 F.3d 711, 714 (7th Cir. 2009).
A
As we already have observed, the district court’s
primary reason to refrain from proceeding with Medical
Assurance’s declaratory judgment action was its percep-
tion that parallel proceedings were underway before
No. 08-2887 15
Indiana’s malpractice panels and courts. Although this
was an appropriate factor to consider for purposes of
both the Declaratory Judgment Act and most absten-
tion doctrines, it is important to note at the outset that a
finding of parallel suits does not end the inquiry.
In Colorado River Water Conservation District v. United
States, 424 U.S. 800 (1976), the Supreme Court reaffirmed
that abstention is the exception, not the rule, and it
applies only in limited circumstances. Id. at 813-20.
We have understood that the existence of a parallel pro-
ceeding—i.e. an overlapping case in a state court—is
a requirement for exercising “Colorado River abstention.”
See Beck v. Dobrowski, 559 F.3d 680, 686 (7th Cir. 2009).
That branch of abstention doctrine is invoked when, in
the interest of wise judicial administration, it is
desirable for one court to yield to another. See Doctor’s
Assocs., supra, 375 F.3d at 622.
Courts often describe the question whether similar
action should be taken in a declaratory judgment case
as “Wilton/Brillhart abstention,” referring to the two
leading cases in this area. Use of the term “abstention,”
however, is not entirely accurate, as it normally refers to
a group of judicially-created doctrines. The decision to
stay an action under the Declaratory Judgment Act
does not require the court to reach for a judicially-created
abstention doctrine. Rather, the Act itself provides the
district court with the necessary discretion. And unlike
Colorado River abstention, discretion under the Declaratory
Judgment Act does not turn on the existence of parallel
proceedings. Wilton, the Supreme Court’s most recent
16 No. 08-2887
pronouncement on these issues, creates no such require-
ment. 515 U.S. at 282-90. If the district court thought
that its discretion depended solely on a finding of
parallel proceedings, it was mistaken.
That said, parallel proceedings do figure in the
holding of Wilton. There the Court stated:
[W]e conclude that [Brillhart] governs this declaratory
judgment action and that district courts’ decisions
about the propriety of hearing declaratory judgment
actions, which are necessarily bound up with their
decisions about the propriety of granting declaratory
relief, should be reviewed for abuse of discretion. We
do not attempt at this time to delineate the outer
boundaries of that discretion in other cases, for ex-
ample, cases raising issues of federal law or cases in
which there are no parallel state proceedings. Like the
Court of Appeals, we conclude only that the District
Court acted within its bounds in staying this action
for declaratory relief where parallel proceedings,
presenting opportunity for ventilation of the same
state law issues, were underway in state court.
Id. at 289-90. Wilton thus holds that the Declaratory Judg-
ment Act confers discretion on the district courts to
decline to hear cases. One factor supporting a decision to
stay an action is the existence of adequate parallel pro-
ceedings. See Sta-Rite Indus. v. Allstate Ins. Co., 96 F.3d 281,
287 (7th Cir. 1996). But the Court did not indicate that
parallel proceedings were either necessary or sufficient.
Even if there is no parallel proceeding, the district court
still has discretion to decline to hear a declaratory judg-
No. 08-2887 17
ment suit. See, e.g., Scottsdale Ins. Co. v. Detco Indus., 426
F.3d 994, 998 (8th Cir. 2005) (describing an approach
“allowing the federal district court some, but not complete,
discretion in determining whether to dismiss or stay
declaratory actions when there are no parallel state court
proceedings”); Sherwin-Williams Co. v. Holmes County, 343
F.3d 383, 392-94 (5th Cir. 2003) (collecting cases where
courts dismissed declaratory judgment actions where
no parallel state proceeding existed).
We discussed these principles in Nationwide Insurance
v. Zavalis, supra. In that case, an insurer sought a declara-
tion that it was not required to defend and indemnify
an insured (Zavalis) in the state court action against him.
We described the proper inquiry as asking “how real [is
the] prospect” that “the declaratory action may present
factual questions that the state court has also been asked
to decide.” 52 F.3d at 693. This question is broader than a
simple inquiry into whether proceedings are “parallel.”
To answer it, we reviewed the overlap between the
federal and state proceedings in light of the substantive
law that informed the declaratory judgment action and
the underlying liability case. See id. at 692 (“[T]he
federal court should consider (among other matters)
whether the declaratory suit presents a question distinct
from the issues raised in the state court proceeding,
whether the parties to the two actions are identical,
whether going forward with the declaratory action will
serve a useful purpose in clarifying the legal obligations
and relationships among the parties or will merely
amount to duplicative and piecemeal litigation, and
whether comparable relief is available to the plaintiff
18 No. 08-2887
seeking a declaratory judgment in another forum or at
another time.”). We found there that the request for
declaratory judgment could be heard “without any ex-
cursion into fact finding that would interfere with the . . .
state court suit.” Id. at 695.
B
With these principles in mind, we are ready to
resolve Medical Assurance’s appeal. We begin with a
brief discussion of the Indiana law that provides the
basis for the underlying litigation against Weinberger.
The state cases are proceeding under the familiar frame-
work for a medical-malpractice claim: the plaintiff
must show that the defendant owed a duty to the plain-
tiff, that he breached his duty by conduct falling below
the standard of care, and that the breach proximately
caused a compensable injury. Musser v. Gentiva Health
Servs., 356 F.3d 751, 760 (7th Cir. 2004). In addition,
Indiana has added a condition precedent: all medical
malpractice cases must be submitted first to a medical
review panel. Medical Assurance is not, and cannot be,
a party in the panel process.
That does not mean that Medical Assurance is indif-
ferent to the outcomes reached by the panels, of course.
Quite to the contrary: it is rational to think that mal-
practice cases blessed by the panels have a much higher
likelihood of success (and, practically, a higher settle-
ment value) than cases for which the panel finds no merit.
Medical Assurance would like a declaratory judgment
to get it off the hook altogether on the policies it wrote
No. 08-2887 19
for Weinberger. It argues that the court can and should
declare that its obligations to Weinberger are over,
because of his failure to comply with the policies’ coopera-
tion clauses. In Indiana, however, an insurer cannot
prevail on that theory unless it can show that the breach
resulted in actual prejudice. Emplrs. Mut. Cas. Co. v.
Skoutaris, 453 F.3d 915, 924 (7th Cir. 2006); Ky. Nat’l Ins. Co.
v. Empire Fire & Marine Ins. Co., 919 N.E.2d 565, 585-87 (Ind.
Ct. App. 2010). Indiana law also has something to say
about proving actual prejudice. The insured’s absence
alone is not enough to establish prejudice; to prove actual
prejudice, the insurer must show somehow that the
outcome of the underlying case would have been
altered by the insured’s cooperation. See Cincinnati Ins.
Co. v. Irvin, 19 F. Supp. 2d 906, 916 (S.D. Ind. 1998)
(“[The requirement] that the insurer must prove at least a
reasonable probability of actual prejudice caused by the
insured’s failure to appear is in harmony with the more
general Indiana holdings that the insurer must prove
prejudice, and that prejudice requires proof that the
insured’s failure to cooperate actually produced a judg-
ment less favorable in the underlying tort action.”). See
also Ky. Nat’l Ins., 919 N.E.2d at 586-87.
The magistrate judge and the district court took these
provisions of Indiana law into account, but only as part
of the inquiry into the question whether the state and
federal proceedings were parallel. This unfortunately
diverted the parties into a lengthy discussion of the true
meaning of “parallel.” On the positive side, this cast some
light on the question of actual prejudice, which is a sub-
ject that will necessarily arise in both sets of cases. The
20 No. 08-2887
district court noted that the prejudice inquiry depends
on whatever facts and defenses in the state cases are
rendered unavailable by Weinberger’s lengthy period of
unavailability and the materiality of those defenses. The
district court also thought that the Indiana courts were
likely to make findings of fact on the significance of
Weinberger’s disappearance to the medical malpractice
claims. These considerations led the court to conclude
that it could not decide the declaratory judgment
action without an inappropriate degree of interference
with the pending and anticipated state court actions.
Medical Assurance points out, however, that the scope
of Weinberger’s insurance coverage is not at issue in the
state court actions. It represents that it is prepared, if it
gets its day in the district court, to meet its burden of
showing actual prejudice from Weinberger’s actions.
Without this declaratory judgment action, it pleads, it
will be left without a practical remedy.
As we said earlier, the Declaratory Judgment Act has
no effect on the substantive law that governs a case,
whether that is found in federal or state law. We therefore
(as did the district court) accept the fact that the law of
Indiana requires plaintiffs to show actual prejudice. But
the district court said more; the district court also said that
it would be impossible for Medical Assurance to show
actual prejudice without interfering with the state pro-
cesses. The latter proposition, in our view, does not
follow. We can imagine ways in which Medical Assurance
might try to establish actual prejudice that would unac-
ceptably intrude on the state cases, but other ways
No. 08-2887 21
might not run that risk. Medical Assurance has not had
the opportunity to develop its position or even to
discover the facts that would support it. We are not
willing to assume that the only way Medical Assurance
can prove its case is through an excursion into factual
questions that the state courts have been, or will be,
asked to address. See J.R.R. T OLKIEN , T HE F ELLOWSHIP OF
THE R ING 58 (Houghton Mifflin Co. 1994) (“For even the
wise cannot see all ends.”).
We also find some ambiguity in the stay that the
district court entered. It is not clear to us whether the
district court meant to allow Medical Assurance to
proceed after a small number of test cases in state court,
or if it meant to preclude Medical Assurance from any
federal litigation until every state case reaches final
judgment. The Commissioner told us that the district
court could not rule on the declaratory judgment claim
without evaluating the facts of every malpractice case. If
that were true, it would certainly cast doubt on the
wisdom of proceeding with the declaratory judgment
action. But we think it too soon to draw this conclusion.
Further exploration of Medical Assurance’s arguments
will demonstrate whether, or the extent to which, the
state court decisions might inform the declaratory judg-
ment action and, if so, whether those decisions involve
common issues that can be extrapolated from a few
state cases.
We understand that more recent events—especially the
return of Weinberger to Indiana—may influence the
district court on remand. The state medical malpractice
22 No. 08-2887
proceedings will go forward, which may provide
guidance to the parties and the court in resolving the
actual-prejudice inquiry. And on remand, a summary
judgment motion could test Medical Assurance’s legal
theories, based on all the evidence that has been
collected thus far. See FED. R. C IV. P. 56. Indeed, summary
judgment is a good tool to examine not only whether
Medical Assurance can succeed as a matter of law but
also whether this case is a suitable candidate for declara-
tory relief.
The purpose of the Declaratory Judgment Act is to
facilitate efficient outcomes. Here, that purpose is best
effected by allowing Medical Assurance to go forward
with its challenge to its duty to defend. See Ill. Sch. Dist.
Agency v. Pac. Ins. Co., 471 F.3d 714, 720 (7th Cir. 2006)
(“[A]n insurer that believes it has no duty to defend a
tendered claim can avoid liability if it either: 1) defends
under a reservation of rights or 2) seeks a declaratory
judgment that it has no obligation to defend.”). That
question is sufficiently distinct from the issues that have
arisen thus far in the state proceedings, and the value of
having a single ruling about the effect of Weinberger’s
behavior on his contractual relations with Medical Assur-
ance is so great, that we conclude that it was an abuse
of discretion to stay this action.
For these reasons, we V ACATE the stay and R EMAND
the case for further proceedings consistent with this
opinion.
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