FEBRUARY 2011 BAD FAITH CASES BAD FAITH SUIT REMANDED TO STATE COURT WHEN IT IS CLOSELY RELATED TO A PENDING STATE COURT CONTRACT SUIT (Western District)

In Columbia Gas of Pennsylvania v. American International Group, two individuals were injured in a gas explosion.  Contractors were installing utility lines in the area where a guard rail was being installed when they punctured a gas line, causing the explosion.  The victims sued Columbia Gas, Heath Consultants, and two contractor defendants in state court as a result of the injuries they sustained.

Columbia Gas then sued Heath Consultants and several insurers in a separate bad faith action, which the opinion summarized here addressed.  Columbia asserted that Heath Consultants, a policyholder of the suit’s insurer defendants, entered into an agreement with it to procure certain coverage, indemnify it, and include it as an additional insured on insurance policies.  The case was removed to federal court on grounds of diversity jurisdiction, and Columbia then filed a motion to remand.

Columbia argued that the federal court should not exercise jurisdiction over the separate bad faith action because of the related pending state court litigation.  The defendants asserted that the Declaratory Judgment Act, 28 U.S.C. § 2201, allows the federal court to exert jurisdiction.  The act states, in part, that a court “may declare the rights . . . of any interested party.”

The court, however, limited the scope of the Declaratory Judgment Act.  It stated that courts should try to avoid “duplicative and piecemeal litigation.”  In this case, the bad faith claim before the court and the underlying claim involving contract law were somewhat duplicative and related.  Despite the underlying claim focusing on breach of contract and personal injuries and the current claim being for bad faith, bad faith presupposes an insurer/insured relationship.  Whether Columbia was considered an insured, and therefore whether it would be eligible to state a bad faith claim in the current action, depended on its liability in the underlying action.

The court thus determined that the two claims were not separate and distinct.  It finally noted that several courts within the Third Circuit’s jurisdiction “have declined to hear declaratory coverage matters between insureds and insurers, even if accompanied by a coercive claim, when the insured’s personal injury case was pending in state court.”  It determined that the entire litigation should be remanded to the state court where the underlying litigation was pending, and it therefore granted Columbia’s Motion to Remand.

Date of Decision:  January 27, 2011

Columbia Gas v. Am. Int’l Group, No. 10-1131, United States District Court for the Western District of Pennsylvania, 2011 U.S. Dist. LEXIS 7919, (Jan. 27, 2011) (Ambrose, J.)