U.S. District Court for the District of South Carolina, March 1, 2021
The issues before the court arise from an insurance coverage action in which the parties disputed the rights and obligation of Covil under a policy allegedly issued to it and whether injuries in underlying asbestos actions are within the products and completed operations hazard of the policies, as well as the proper method for allocating injury across multiple policy years.
The action was initially filed in state court by the appointed receiver for Covil, which had been dissolved, and was removed by defendant Sentry Insurance a Mutual Company, based on diversity. The Federal Court denied the motion to remand and a few months later, defendant Hartford Accident and Indemnity Company filed a motion to enjoin the receiver with respect to a related but separate state court action. The motion to enjoin was joined by USF&G. The injunction was granted.
The receiver filed a motion for clarification and reconsideration of the injunction and moved for reconsideration of the denial of remand. USF&G, as the only remaining active insurer defendant, moved to enforce the injunction, seeking findings of contempt and sanctions.
The court held that the injunction exceeded the bounds of statutory authorization by enjoining not just the removed action and the “copycat” action, but all state proceedings implicating coverage issues. The court noted that enjoining receiver would be an untenable situation, as it would be impossible for the receiver to comply with the injunction and fulfill his duties in pursuing Covil’s coverage related claims and defenses in all of the state court actions over which the Federal court has no jurisdiction. The court further held that its jurisdiction was not threatened or undermined by parallel proceedings in state court and did not fall into an exception of the Anti-Injunction Act.
With respect to remand, the receiver argued that the court should abstain from exercising jurisdiction pursuant to the Trustgard Ins. Co. decision, which involved a claim brought pursuant to the Declaratory Judgment Act, affording Federal Courts discretion whether to declare the rights of litigants. The court noted that the action before the court is a “mixed case” involving both declaratory and non-declaratory claims and a more stringent standard applied, requiring a parallel action and “exceptional circumstances” which were not present here.
The court additionally denied USF&G’s motions to enforce the injunction, noting that the receiver had been “fastidiously transparent” about the proceedings in the Receivership Court and that, in any event, the injunction was moot given the court’s findings that the injunction was improvidently granted in the first place.