Insurance carriers typically prefer a federal court to decide their insurance coverage declaratory judgment actions. The federal bench’s well-known facility with insurance law and the relative uniformity of federal procedure are among the reasons carriers regard a federal forum as more appealing than state court. As a result, a carrier often brings a declaratory judgment action in federal court to determine its obligation to defend and indemnify a defendant in an action pending in state court. In that circumstance, the federal Declaratory Judgment Act (DJA) provides an exception to the general rule that federal courts have a strict duty to exercise the jurisdiction conferred on them by Congress. Specifically, the DJA grants federal courts broad discretion in deciding whether to abstain from hearing the action or remanding it to state court. While the discretion granted under the DJA is substantial, it is not unlimited. In the words of the U.S. Supreme Court, it is “bounded and reviewable.”

In the U.S. Court of Appeals for the Third Circuit, district courts exercising their discretion under the DJA are guided by the landmark opinion in Reifer v. Westport Insurance, 751 F.3d 129 (3d Cir. 2014). Reifer sets forth the factors a district court must address when deciding whether to abstain from hearing an insurance coverage declaratory judgment action. In practice, the district courts’ implementation of the Reifer factors was uneven, with the Third Circuit repeatedly returning to the issue to provide additional guidance. In each instance, the appellate court’s review resulted in the retention of jurisdiction, and signaled that a decision to abstain must be carefully and thoroughly considered. As a result, Third Circuit district courts appear to be less likely to abstain from hearing insurance declaratory judgment actions in recent years. For courts considering abstention in an insurance declaratory judgment action, Reifer’s first instruction is to determine whether there is a “parallel state proceeding” to the federal action.

This content has been archived. It is available through our partners, LexisNexis® and Bloomberg Law.

To view this content, please continue to their sites.

Not a Lexis Subscriber?
Subscribe Now

Not a Bloomberg Law Subscriber?
Subscribe Now

Why am I seeing this?

LexisNexis® and Bloomberg Law are third party online distributors of the broad collection of current and archived versions of ALM's legal news publications. LexisNexis® and Bloomberg Law customers are able to access and use ALM's content, including content from the National Law Journal, The American Lawyer, Legaltech News, The New York Law Journal, and Corporate Counsel, as well as other sources of legal information.

For questions call 1-877-256-2472 or contact us at [email protected]