Opinion
CIVIL ACTION No. 03-1428.
June 26, 2003.
MEMORANDUM AND ORDER
Presently before the Court is Defendant Frontier Insurance Company's motion to dismiss, or, in the alternative, to stay the declaratory judgment action brought by Women's Christian Alliance, Marva Rountree, Sandra Lewis, Constance Savage, and the City of Philadelphia. For the reasons set forth below, I grant Defendant's motion to dismiss and transfer this case to the Honorable Edward H. Lehner, the Supreme Court of the State of New York, County of New York.
I. INTRODUCTION
A foster child, by and through her natural guardian, brought an action in this Court against Women's Christian Alliance, Marva Rountree, Sandra Lewis, Constance Savage, and the City of Philadelphia, alleging state law claims of negligence and violations of her constitutional rights under 42 U.S.C. § 1983. (Compl. ¶ 17.) As a result of this underlying action, Women's Christian Alliance, Marva Rountree, Sandra Lewis, Constance Savage, and the City of Philadelphia (collectively "Plaintiffs") submitted claims under a professional liability insurance policy to the insurer, Defendant Frontier Insurance Company ("Frontier"). Frontier allegedly took the position that liability coverage was limited to $50,000.00. (Compl. ¶ 23.)
On October 15, 2001, the Honorable Edward Lehner of the Supreme Court of New York, New York County found Frontier to be insolvent and appointed the Superintendent of Insurance of the State of New York as the Rehabilitator for Frontier. (Order of Rehabilitation dated Oct. 15, 2001, Def.'s Mot. to Dismiss, Ex. C at 2.) Additionally, the court ordered that "[a]ll persons are enjoined and restrained from commencing or prosecuting any actions, lawsuits, or proceedings against Frontier, or the Superintendent as Rehabilitator." ( Id. at 3.) At some point after Frontier was ordered into rehabilitation, Plaintiffs submitted their claims to a representative of the Rehabilitator for Frontier, which the representative promptly denied.
At oral argument, counsel for the City of Philadelphia explained to the Court that a representative of the Rehabilitator for Frontier had rejected Plaintiffs' claims during settlement negotiations of the underlying action alleging negligence and constitutional violations against Plaintiffs.
As a result of the denial of coverage by Frontier, and, subsequently by the Rehabilitator for Frontier, Plaintiffs filed a declaratory judgment action in this Court against Defendant Frontier to establish the terms of coverage under the policy. Asserting that the Burford abstention doctrine applies, Defendant Frontier moves the Court to dismiss, or, alternatively, stay this action in order to avoid disruption of New York's regulatory scheme for rehabilitating insolvent insurance companies.
II. DISCUSSION
Under the Burford abstention doctrine, a federal court should "refuse to exercise its jurisdiction in a manner that would interfere with a state's efforts to regulate an area of law in which state interests predominate and in which adequate and timely state review of the regulatory scheme is available." Chiropractic Am. v. LaVecchia, 180 F.3d 99, 104 (3d. Cir. 1999) (citing Burford v. Sun Oil Co., 319 U.S. 315, 332-34 (1943)); see also Quackenbush v. Allstate Ins. Co., 517 U.S. 706, 726 (1996). The Third Circuit explained the standard governing Burford abstention as follows:
Where timely and adequate state-court review is available, a federal court sitting in equity must decline to interfere with the proceedings or orders of state administrative agencies: (1) when there are "difficult questions of state law bearing on policy problems of substantial public import whose importance transcends the result in the case then at bar"; or (2) where the "exercise of federal review of the question in a case and in similar cases would be disruptive of state efforts to establish a coherent policy with respect to a matter of substantial public concern."Chiropractic Am., 180 F.3d at 104 (quoting New Orleans Pub. Serv., Inc. v. Council of the City of New Orleans, 491 U.S. 350,361 (1989)); see also Feige v. Sechrest, 90 F.3d 846, 847 (3d Cir. 1996) (quoting Riley v. Simmons, 45 F.3d 764, 771 (3d Cir. 1995)). In addition, the Third Circuit has specifically counseled that "`the regulation of insurance companies unable to meet their obligations entails the type of strong state interest in which application of Burford abstention is appropriate."" Grode v. The Mutual Fire Marine and Inland Ins. Co., 8 F.3d 953, 958 (3d Cir. 1993) (quoting Lac D'Amiante du Quebec, Ltee v. Am. Home Assurance Co., 864 F.2d 1033, 1045 (3d Cir. 1988)).
In the present case, it is clear that timely and adequate state court review is available to adjudicate this action. As courts have noted, "New York has set up a comprehensive plan of regulation of insurance companies, with particularly detailed provisions concerning rehabilitation and liquidation" of which "[t]he New York courts have long been active partners." Law Enforcement Ins. Co. v. Corcoran, 807 F.2d 38, 43 (2d Cir. 1986) (citations omitted); see also Corcoran v. Universal Reinsurance Corp., 713 F. Supp. 77, 80-81 (S.D.N.Y. 1989) (holding that "[b]y vesting control of all claims for and against a bankrupt insurer in one court, the New York law `insures economical, efficient and orderly liquidation'" ( quoting Washburn v. Corcoran, 643 F. Supp. 554, 566 (S.D.N.Y. 1986)). Moreover, "[n]ot only have [New York courts] on a number of occasions reviewed in considerable detail the propriety of the liquidator's [or rehabilitator's] decisions to grant or disallow claims, they have implemented the state's policy of unified adjudication by requiring all claims and challenges to be centralized in the court supervising the liquidation or rehabilitation." Law Enforcement Ins. Co., 807 F.2d at 43 (citations omitted); see also Lac D'Amiante du Quebec, 864 F.2d at 1040-42 (discussing New York insurance law under Uniform Act and explaining exclusive jurisdiction of court that orders liquidation (citing Knickerbocker Agency, Inc. v. Holz, 4 N.Y.2d 245, 250 (N.Y. 1958)); JOHN ALAN APPLEMAN JEAN APPLEMAN, 19A INSURANCE LAW AND PRACTICE § 10654 (2003) ("In fact, under New York statutes, the supreme court, with the agency of the Superintendent of Insurance, was intended to have exclusive jurisdiction of claims both for and against an insolvent insurance company." (citing Knickerbocker, 4 N.Y.2d at 250)). Thus, while New York law provides for adequate and timely state court relief for challenges to the Rehabilitator's decision regarding claims, the relief available in state court is also part of a larger regulatory framework that is in place to ensure the unified, consistent, and efficient adjudication of claims against insolvent insurance companies.
Here, Plaintiffs' claims were rejected by a representative of the Rehabilitator of Frontier, making this action ripe for adjudication. As the coherent policy established under New York law provides for consistent and efficient adjudication of such actions by the Supreme Court of New York, Burford abstention is appropriate in order to avoid disrupting New York's regulatory scheme. Therefore, I decline to exercise my discretion to hear this action, and, accordingly, transfer this action to the Honorable Edward Lehner, Supreme Court of New York, New York County. An appropriate Order follows.
ORDER
AND NOW, this 26th day of June, 2003, upon consideration of Defendant Frontier Insurance Company's Motion to Dismiss, the response thereto, Defendant Frontier Insurance Company's Supplemental Memorandum, and following oral argument thereon, and for the foregoing reasons, it is hereby ORDERED that:
1. Defendant Frontier Insurance Company's Motion to Dismiss (Document No. 7) is GRANTED.
2. The Clerk of Court is directed to TRANSFER this case to the Honorable Edward H. Lehner, the Supreme Court of the State of New York, County of New York, Civil Division, Part 19, 60 Centre Street, Rm. 252, New York, New York 10007.
3. The Clerk of Court is directed to close this case for statistical purposes.