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The Federal Court retains jurisdiction for revocation cases



Karen Macko ("Mrs. Macko") and William Stephen Mackos ("Mr. Macko") (together, "Mackos") asked the court to dismiss an action brought by their insurer requesting confirmation on termination of an insurance. In S afeport Insurance Company v. Karen Macko and William Stephen Macko No. 9: 21-cv-00131-DCN, United States District Court, D. South Carolina, Beaufort Division (December 8, 2021) USDC resolved the claims.

BACKGROUND

The Mackos bought a home on Hilton Head Island, South Carolina ("the home"). The home is named in both Mr and Mrs Macko's name, as joint tenants with the right to survivors. In December 2018, Mrs. Macko on home insurance with SafePort through a third party insurance agency, American Auto Club Insurance Agency ("American Auto"). Whether the application was prepared by Mrs. Macko herself or her agent, in response to questions in the application, Mrs. Macko as an unmarried person who owned the home directly. Furthermore, Mrs. Macko's application that no member of her household had been convicted of a felony or other serious crime.

Mrs. Macko renewed the first policy, at which time SafePort issued the second policy, to Mrs. Macko. Later, Mr. Macko to as a named insured on the other insurance. During the term of the second policy, Mackos suffered an unintentional fire loss to the home, making it uninhabitable (the "fire loss").

Shortly thereafter, Mackos hired Servicemaster of Beaufort, Inc., a South Carolina company ("Servicemaster"), to repair the damage to the Home. According to Mackos, they hired Servicemaster in accordance with SafePort's instructions and recommendations. Under the second policy, SafePort made payments to Mackos for loss of home use and authorized Servicemaster to remove all drywall from the home and dispose of Macko's personal contents, which were considered a total loss.

During its investigation, SafePort discovered two alleged misrepresentations in Mrs. Macko's application for First Policy. First, Mrs. Macko married, contrary to what was stated in her application which identified her as unmarried and owned the home in its entirety. Secondly, Macko had been convicted of serious insurance fraud, contrary to what was stated in the application that no member of the household had been convicted of a serious crime or other serious crime. As a result, SafePort sent a letter to Mrs Macko claiming to repeal First Policy ab initio based on Mrs Macko's "provision of incorrect information and / or omission of correct information in [] application." [19659006] SafePort, sued with a request for (1) repeal of the policies of fair fraud and (2) declaratory judgments stating that they have no obligation to Mackos or any other person under the policies. The next day, Servicemaster filed a mechanic lien against Mackos and the home to secure alleged amounts of work performed in the home in connection with the fire loss.

Before Mackos filed a response in this federal lawsuit, Mackos filed a response, a cross-claim. , and a third-party complaint in State Court Action. In its cross-claims, Macko's bad faith and breach of contract claim causes of action against SafePort and seek a declaratory verdict. Specifically, Mackos asked the state court to declare that the second policy was in effect at the time of the fire loss, that SafePort's cancellation was incorrect, that SafePort had failed to pay benefits to be paid under the second policy and that SafePort had engaged in inappropriate claims. 19659006] On March 15, 2021, Mackos filed a motion to dismiss this federal action in accordance with the abstinence doctrine, arguing that the two trials are about the same issues.

DISCUSSION

Since SafePort demands a declaration that the Police are invalid ab initio and that they do not owe Mackos any obligations under the Police, Mackos perceives the case as falling exclusively under declaratory judgment 28 USC § 2201 . The Declaratory Judgment Act makes it clear that district courts have room for discretion in deciding whether and when an action is to be processed in accordance with the Declaratory Judgment Act, even when the action otherwise meets the conditions of substantive law.

SafePort claimed that they had brought a non-declaratory action. claims for revocation that fall within the jurisdiction of the federal court. Although prudent judicial policy and extraordinary circumstances may justify dismissal, courts must remain aware that waiving the exercise of federal jurisdiction is the exception and not the rule.

Revocation is a non-declaratory claim that a court must deal with unless there are extraordinary and tight circumstances exist. To ensure that they have requested all available relief, plaintiffs usually add a request for declaratory relief in addition to the request for reasonable or monetary relief. The USDC declined to adopt a rule that would turn that thoroughness into a handicap.

Two conditions must exist for a court to deny jurisdiction: First, there must be parallel proceedings in state and federal courts. Secondly, there must be exceptional circumstances which justify abstaining.

Parallel proceedings

Disputes are parallel if essentially the same parties dispute essentially the same issues in different forums. Due to the additional parties in the State Court Action, the parties are not the same in appearance.

SafePort claims that the trials do not essentially address the same issues because the primary complaint in State Court Action involves Servicemasters' attempts to recover for work completed at home.

Both measures involve the actual questions of whether Mrs. Macko made incorrect representations in its insurance application and whether SafePort relied on these incorrect representations in issuing the Police. Both measures also involve the legal issues of whether the policies are invalid ab initio and whether SafePort is responsible for any part of the fire loss. Nevertheless, the Court's analysis is complicated by the fact that SafePort seeks further compensation for withdrawal in this action and does not claim that cause of action in State Court Action.

State and federal claims arising from the same facts do so. do not qualify as parallel if they differ in scope or involve different remedies. Rather, a federal court can only abstain if it concludes that the parallel litigation between state and court will be an adequate means of a complete and speedy settlement of the issues between the parties. If there is any serious doubt that the State's action would resolve all claims, it would be a serious abuse of discretion to refrain. Since SafePort's action is not upheld in State Court Action, State Court Action would not settle all claims before this Court, which supports the conclusion that the action is not parallel.

The court did not find. that circumstances or justification for the abstention are present in the case brought by SafePort. Therefore, the court found that it was obliged to uphold its virtually unshakable obligation to exercise its jurisdiction over the case in question in a proper manner. Macko & # 39 ;s, before responding to the federal action, responded to a state court action to enforce an entrepreneur's attachment and extended it to cover some of the issues in federal action, then argued that the two actions are parallel. The attempt failed correctly and the revocation action can be resolved in a federal court and, based on the information about incorrect representations and concealment of essential facts – the previous conviction for insurance fraud by Mr. Macko – be dispositive. The jurisdictional trick to avoid federal court failed.


© 2022 – Barry Zalma

Barry Zalma, Esq., CFE, now limits his internship to the position of insurance consultant specializing in insurance coverage, insurance claims management, near-insurance and bad faith insurance. equally for insurers and policyholders.

He also acts as an arbitrator or media for insurance-related disputes. He practiced law in California for more than 44 years as a lawyer for insurance coverage and claims management and more than 54 years in the insurance industry.

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