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MARYLAND INS. CO. v. ATTORNEYS' LIAB. ASSUR. SOCY.

September 26, 1990

MARYLAND INSURANCE COMPANY, Plaintiff,
v.
ATTORNEYS' LIABILITY ASSURANCE SOCIETY, LTD., Defendant


Milton I. Shadur, United States District Judge.


The opinion of the court was delivered by: SHADUR

MILTON I. SHADUR, UNITED STATES DISTRICT JUDGE

 Maryland Insurance Company ("Maryland") has filed a declaratory judgment action against Attorneys' Liability Assurance Society, Ltd. ("ALAS") as to their respective rights and duties in connection with a lawsuit pending against a party that may or may not be covered by one of Maryland's insurance policies. ALAS has moved (1) to dismiss the action for lack of an Article III "case or controversy" or, if unsuccessful on that score, (2) to transfer the action to the United States District Court for the Western District of Texas. For the reasons stated in this memorandum opinion and order, ALAS' motion to dismiss is granted.

 Both Maryland and ALAS are potentially liable as insurers in a major legal malpractice action (the "Underlying Action") brought in Texas against a law firm ("Law Firm") whose home base is located there. That Underlying Action is said to be close to settlement, but -- and this is the critical fact -- it is not yet settled. Maryland has committed itself to advance a large contribution to the pot in the proposed settlement, without prejudice to its right to contest the question whether its own policy in fact provides coverage.

 There is still another and wholly independent factor that ALAS characterizes for the first time in its Reply Memorandum as both critical and dispositive: Maryland's nonjoinder of the insured Law Firm as a codefendant in this declaratory judgment action. In an important sense that argument is quite unfair to Maryland -- ALAS' original 3-page Motion To Dismiss for Lack of Justiciability did not make its argument in that form, and at that time ALAS "simultaneously announced that it waives the filing of a supporting memorandum because its motion has cited the case law on which it relies" (page 1 of this Court's September 4, Memorandum Order). Because Maryland therefore has not had the opportunity to meet that argument, this opinion will first deal with the problem without reference to that new contention and will only then consider whether the new argument might serve as another string to ALAS' bow.

 Nonjusticiability for Lack of Ripeness

 In this Circuit it is firmly established that an insurer's duty to indemnify against liability cannot be the subject of federal litigation before the insured's liability has been established -- whether by litigation on the merits or by settlement. That doctrine has most recently been reconfirmed by our Court of Appeals in Argento v. Village of Melrose Park, 838 F.2d 1483, 1492 (7th Cir. 1988) (most citations omitted):

 
"Claims for indemnity are separate and apart from tort claims and are not consolidated with the tort claim unless there is another contested issue such as the duty of the indemnitor to defend." [ Kerr v. City of Chicago,] 424 F.2d [1134], 1141-1142 (emphasis added) [(7th Cir. 1970)]. Thus in this Circuit an insurer ordinarily cannot obtain a declaratory judgment as to its liability prior to the insured first being found liable, Cunningham Brothers, Inc. v. Bail, 407 F.2d 1165, 1169 (7th Cir. 1969), certiorari denied, 395 U.S. 959, 89 S. Ct. 2100, 23 L. Ed. 2d 745; National Union Fire Insurance Co. of Pittsburgh v. Continental Illinois Corp., 646 F. Supp. 746, 750 (N.D. Ill. 1986), *fn1" and an insurer cannot ordinarily be joined as a third-party defendant. However, where there is an actual controversy, such as over an insurer's duty to defend, both declaratory relief, and joining the insurer as a third party, are proper. In the present case the liability of the defendants had already been established and Hartford denied liability under the insurance policy. Therefore a controversy existed that permitted Hartford to be joined in the action. Thus the indemnity claim in this case need not be brought in a separate action and we perceive no other reason why the district court might possibly have lacked jurisdiction.

 Although Maryland divides its memorandum in opposition to dismissal into two major subheadings, there are really four points that require discussion to scotch its effort to extricate itself from the grip of nonjusticiability most recently announced (at least by our Court of Appeals) in Argento. None of the factors that Maryland discusses proves persuasive.

 First, Maryland says that what is involved here is not the "totally speculative future event" that this Court found insufficient to confer jurisdiction in a later opinion in National Union, 652 F. Supp. 858, 865 (N.D.Ill. 1986). But Maryland's own argument is self-defeating. It says (Mem. 3, footnote omitted):

 
Maryland has firmly committed a substantial sum of money to the settlement of the underlying action, despite its contention that it owes nothing. Maryland is required to produce that sum within a few days of the final approval of the settlement. All that remains for the settlement to be final is the collection of the necessary signatures on the various documents and the obtaining of the approval of the various courts that have a say in the matter. Exhibit A to Motion to Dismiss for Lack of Justiciability. All parties fully expect that the settlement will be approved and finalized in the next month or so. Id.

 Yet until that really happens the settlement remains a contingency, however probable its accomplishment may now appear. And the accomplishment of such a settlement marks the bright line between a declaration of possible future rights and duties and a declaration of actual present rights and duties -- the bright line between tomorrow and today, between nonjusticiability and justiciability in Article III terms. *fn2"

 Second, Maryland points to decisions in other jurisdictions that find justiciability by reason of what the courts there perceive as the real-world need to shape settlement strategy (coupled, of course, with the real-world fact that most disputes are settled and not litigated): ACandS, Inc. v. Aetna Casualty & Surety Co., 666 F.2d 819, 822-23 (3d Cir. 1981); Rubins Contractors, Inc. v. Lumbermens Mutual Insurance Co., 261 U.S. App. D.C. 183, 821 F.2d 671, 673-74 (D.C. Cir. 1987); *fn3" Kunkel v. Continental Casualty Co., 866 F.2d 1269, 1273-75 (10th Cir. 1989); Eureka Federal Savings & Loan Association v. American Casualty Co. of Reading, Pa., 873 F.2d 229, 231-32 (9th Cir. 1989). But those real-world factors are not new. They have existed with equal force throughout the period that our Court of Appeals has ruled as it did and that, in those rulings, it has rejected like considerations as a substitute for justiciability. This Court's responsibility in jurisprudential terms is of course to follow its leader and not other Courts of Appeals, at least where the Seventh Circuit has spoken as recently as it did in Argento.

 In this situation, however, it is unnecessary to decide whether or not our Court of Appeals would find those other decisions persuasive as to what Article III demands. *fn4" It takes only a moment's thought to see that even if it did, Maryland would not prevail on its contention here. It must be remembered that Maryland has already committed itself to what money it will tender up front -- simply as an advance pending the decision on actual liability -- if and when the Underlying Action is settled, so that no "settlement strategy" is involved in the present situation at all. Instead, Maryland purely and simply wants to have a definition now (when no actual liability ...


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