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Maryland District Court Applies Supreme Court Abstention Standards in Fraudulent Death Case and Denies Claimant’s Motion to Dismiss Under 28 U.S.C. § 2201

AMEX Assurance Company v. Gary Vincent Giordano
United States District Court for the District of Maryland, AW-12-cv-2640
(D. Md. Feb. 22, 2013)
by Jhanelle Graham, Law Clerk
Semmes, Bowen & Semmes (www.semmes.com)

In AMEX Assurance Company v. Gary Vincent Giordano, Plaintiff, AMEX Assurance Company (“AMEX”), brought an action against Defendant, Gary Vincent Giordano, seeking declaratory relief under 28 U.S.C. § 2201 and alleging fraud and negligent misrepresentation. United States District Judge Alexander Williams, Jr. denied Giordano’s motion to dismiss the case, finding instead that AMEX’s complaint sufficiently alleged plausible claims on all counts.

On July 27, 2011, AMEX issued a travel insurance policy (“the Policy”) to Giordano for a trip to Aruba scheduled for July 31, 2011 to August 5, 2011. Under the Policy, Giordano and his traveling companion, Robyn Lynn Gardner, were both identified as “Covered Persons.” In connection with this trip, Giordano faxed and mailed to AMEX Beneficiary Designation Forms for himself and Ms. Gardner. Ms. Gardner’s form designated Giordano as her sole beneficiary and listed their relationship as “Partner.” The Policy included Accidental Death and Dismemberment coverage up to $1,500,000. To recover on these benefits, a claimant was required to provide both Notice of Claim and Proof of Loss. Furthermore, a Covered Person was not permitted to bring legal action to recover on the Policy until sixty (60) days after AMEX had received Proof of Loss.

On August 2, 2011, Giordano reported Ms. Gardner missing to Aruban authorities, stating that she had disappeared while they were both snorkeling. There was no official declaration of Ms. Gardner’s death. On August 4, 2011, two (2) days after he reported Ms. Gardner missing to Aruban authorities, Giordano called AMEX to inquire about the Beneficiary Designation Forms, but he did not make a death benefits Notice of Claim with respect to Ms. Gardner. In February 2012, however, Giordano contacted AMEX again, seeking to recover death benefits on the Policy and arguing that he had made a Notice of Claim with respect to Ms. Gardner on August 4, 2011.

On June 14, 2012, Giordano filed a complaint against AMEX in the Circuit Court of Cook County, Illinois, alleging breach of contract (Count I) and seeking a declaration that AMEX had a duty to pay Giordano $3,500,000 (Count II). In August 2012, Giordano sent a demand letter to AMEX. AMEX interpreted the letter as a Notice of Claim and initiated the claims investigation process. As part of that process, AMEX requested that Giordano submit several supplemental claims materials, including Proof of Loss materials. On September 21, 2012, AMEX indicated to Giordano that the information he had provided to date remained incomplete and detailed the additional materials required to fulfill the request. According to AMEX, Giordano did not respond in full to AMEX’s requests, including its request to provide a complete Proof of Loss.

On September 6, 2012, AMEX filed a diversity action for declaratory relief pursuant to 28 U.S.C. § 2201 (Counts I and II), fraud (Count III), and negligent misrepresentation (Count IV). Specifically, AMEX sought declarations that the Accidental Death and Dismemberment coverage of the Policy was void ab initio for lack of insurable interest and that no valid claim could be made under the Policy. On September 17, 2012, AMEX filed a motion to dismiss Giordano’s complaint in Illinois on forum non conveniens grounds. AMEX also filed a motion to dismiss for failure to state a claim. At the time of litigation in Maryland district court, these motions were still pending in Illinois. AMEX had not filed any counterclaims or asserted any defenses in the Illinois action.

First, the Maryland district court asserted jurisdiction under 28 U.S.C. § 1332(c), which states that a corporation is a citizen of its place of incorporation and of the state where it had its principal place of business. AMEX was an insurance company incorporated in Illinois with its principal place of business in Phoenix, Arizona, while Giordano was a Maryland resident. Therefore, since the matter in controversy exceeded $75,000 and was between citizens of different states, the district court had subject matter jurisdiction pursuant to 28 U.S.C. § 1332.

Second, with respect to Giordano’s contention that, under 28 U.S.C. § 2201, the Court should abstain from the action in deference to the concurrent Illinois state court action, the Maryland district court held that dismissal was unwarranted. Citing to Colorado River Water Conservation Dist. v. United States, 424 U.S. 800 (1976), the court clarified that abstention from the duty to exercise federal jurisdiction was not the rule, but “an extraordinary and narrow exception.” The threshold question in determining whether Colorado River abstention is appropriate is whether there are parallel state and federal actions. If parallel suits exist, courts then balance six (6) non-exclusive factors to determine whether exceptional circumstances compel abstention: (1) whether the subject matter of the litigation involves property where the first court may assume in rem jurisdiction to the exclusion of others; (2) whether the federal forum is inconvenient; (3) the desirability of avoiding piecemeal litigation; (4) the relevant order in which the courts obtained jurisdiction and progress achieved in each action; (5) whether state law or federal law provides the rule of decision on the merits; and (6) the adequacy of the state proceedings to protect the parties’ rights. Colorado River, 424 U.S. at 817.

After balancing the interests at stake, the court found no exceptional circumstances to warrant abstention. Despite conceding that the actions at issue arose from the same insurance policy and shared some common factual allegations, the district court rejected Giordano’s argument that the actions presented the same issues. In the Illinois action, the issue was whether AMEX breached the Policy by failing to pay Giordano for Ms. Gardner’s death. By contrast, in the federal action, the issues were whether the Policy was void for lack of insurable interest and whether Giordano misrepresented the nature of his and Ms. Gardner’s relationship. The district court highlighted the Fourth Circuit decision in Gannett Co., Inc. v. Clark Constr. Grp., Inc., 286 F.3d 737, 742–43 (4th Cir. 2002), which supported the position that an alleged absence of an insurable interest and claims of fraud and negligent misrepresentation in competing proceedings were not substantially the same. See Gannett Co., 286 F.3d at 742–43 (holding that suits were not parallel where federal action involved breach of contract issue and state lien action involved existence of contract issue).

Moreover, the Maryland district court stated that the Illinois and federal cases were not substantially the same because there was no guarantee that the issues litigated in the federal suit would necessarily arise in the Illinois suit and vice versa. That is, even if AMEX did not contest the Policy’s validity or raise a defense or counterclaim alleging fraud or misrepresentation in Maryland district court, it could still prevail in the Illinois action based solely on issues of timing and fulfillment of Policy requirements. Conversely, even if AMEX prevailed in the Illinois suit, it would not necessarily prevail in the federal action.

Consequently, the district court found that the abstention standards articulated in Brillhart v. Excess Ins. Co. of Am., 316 U.S. 491 (1942), Wilton v. Seven Falls Co., 515 U.S. 277 (1995) (“Brillhart/Wilton”), and Colorado River did not support abstention in this case because the state action had not progressed beyond that of the federal action to the extent that abstention was favored. On these grounds, the district court denied Giordano’s motion to dismiss the case under 28 U.S.C. § 2201 and determined that AMEX had sufficiently alleged plausible claims for relief on Counts II, III, and IV.