Civil Practice – Subject Matter Jurisdiction – Declaratory Judgment Action – Contract – Insurance – Workers’ Compensation Case

Owners Insurance Co. v. Warren Mechanical, LLC (Lawyers Weekly No. 002-014-18, 10 pp.) (David Norton, J.) 2:16-cv-00669; D.S.C.

Holding: Upon learning that a workers’ compensation claim – involving the same policy at issue in this case – remains pending before the South Carolina Workers’ Compensation Commission, the court exercises its discretion under the Declaratory Judgment Act to abstain from hearing the case.

Defendant’s motion for reconsideration is granted. This action is dismissed without prejudice.

In this action seeking a declaration that the parties’ workers’ compensation policy was void ab initio, the court previously denied the defendant-insured’s motion to dismiss for lack of subject matter jurisdiction. At that time, the court was under the mistaken impression that a workers’ comp claim filed by defendant’s employee had been settled.

The court has since learned that the workers’ comp case is still pending, so the court grants defendant’s motion for reconsideration. Upon reconsideration, the court grants defendant’s motion to dismiss for lack of subject matter jurisdiction.

If this court adjudicates this declaratory judgment action, it might result in unnecessary entanglement between the federal and state systems. The plaintiff-insurer argues that it only seeks to clarify the rights between the parties for any future claims that might arise, and this court’s decision will have no impact on the injured employee’s claim.

Plaintiff asks the court to simply decide whether the alleged material misrepresentations in defendant’s application prevented the formation of a contract for insurance. The role of the South Carolina Workers’ Compensation Commission (SCWCC), by contrast, is to determine whether the employee is entitled to coverage for the injuries he incurred while on the job.

However, in order for the SCWCC to make that determination, it will first have to assess whether a contract for insurance even existed at the time of the employee’s injury – the exact question before this court. If this court does not abstain, it is possible that it will decide that the contract was or was not properly formed, while the SCWCC could decide the opposite.

It is in the interest of federalism to avoid situations where the state and federal courts might reach different results regarding the same issue. Additionally, it is far more efficient to have only the SCWCC determine whether the contract should be declared void ab initio, rather than having both this court and the SCWCC engage in that analysis.

Dismissed without prejudice.