Court Denies Motion to Dismiss Coverage Action, But Grants Colorado River Abstention

OHIO – The William Powell Company, which manufactured asbestos-containing valves and other products, fought a two-front coverage battle with its insurers regarding defense and indemnity for various personal injury cases filed against the company. In Ohio state court, Powell sought a declaratory judgment that it had the right to allocate sums expended to settle various cases, both retrospectively and prospectively. Powell later revised its claims to include breach of contract and a request for money damages. In federal court, Powell filed a lawsuit alleging breach of contract and bad faith.

A judgment was entered in the state court action, allowing Powell to allocate settlement funds, but holding Powell liable for contribution to one of its insurers in the amount of $11.3 million. Subsequently, the insurer moved to dismiss or stay the federal court action.  The insurer argued that Powell’s claims in the federal court action were precluded by the state court judgment, or alternatively that the court should exercise Colorado River abstention until all appeals of the state court action have been resolved.

The federal court refused to dismiss Powell’s claims pursuant to the doctrine of claim preclusion. Although all of the technical elements of an argument for claim preclusion appeared to be met, the court applied Restatement of the Law 2d Judgments Section 26 to hold that claim preclusion did not apply because “the policies favoring preclusion … [were] overcome for an extraordinary reason.” Essentially, the court held that because Powell’s lawsuits in state and federal court had proceeded on parallel tracks for almost five years, it would be inequitable to dismiss the federal court action just because the state court action reached a final judgment first.

However, the court stayed the federal court action under the Colorado River doctrine, which allows federal courts to abstain from exercising jurisdiction in situations involving contemporaneous exercise of jurisdiction by state and federal courts. Because the two actions became parallel following Powell’s amendment of its state court complaint to seek damages for breach of contract, the factors in the Colorado River analysis favored abstention. As a result, the court stayed the federal court action until the state court action becomes fully resolved.

Read the case decision here.