United States District Court, District of South Dakota, Northern Division
OPINION AND ORDER DENYING MOTION TO DISMISS
ROBERTO A. LANGE UNITED STATES DISTRICT JUDGE
Quest Aviation, Inc. (Quest) filed a complaint for declaratory judgment against NationAir Insurance Agencies, Inc. (NationAir) in South Dakota state court. Doc. 1-1 at 13-19. NationAir removed the case to federal district court pursuant to 28 U.S.C. § 1441, asserting diversity jurisdiction under 28 U.S.C. § 1332. Doc. 1. NationAir then filed its Motion to Dismiss, Doc. 7, for failure to state a claim pursuant to Federal Rule of Civil Procedure 12(b)(6). Quest opposed the motion to dismiss and requested oral argument on the motion. Doc. 13. This Court finds that Quest has stated a justiciable claim upon which relief may be granted and the circumstances do not justify dismissal of the claim.
When ruling on a motion to dismiss for failure to state a claim, a court "must accept as true all of the factual allegations contained in the complaint." Erickson v. Pardus, 551 U.S. 89, 93-94 (2007) (per curiam). Therefore, the pertinent facts will be taken from what Quest alleges in its complaint.
Quest is a South Dakota Corporation, with its principal place of business in Aberdeen, South Dakota. Doc. 1-1 at 13. Quest provides air charter and other aeronautical services in Aberdeen and Tea, South Dakota. Id at 13, 16. NationAir is an insurance broker that specializes in procuring aviation insurance for clients. Id. at 14. NationAir's specialized experience in insurance for the aviation industry is valuable, it claims, because business insurance policies generally exclude aviation related losses. Id
John Worthing (Worthing), an experienced sales executive and director at NationAir, secured two insurance policies for Quest in late 2010 and early 2011. Id at 14-15. Both policies were underwritten by National Union Fire Insurance Company (National Union). Id at 15. One policy, entitled "Aviation Policy, " had a $3 million per occurrence liability limit. Id The other policy, an "Aviation Commercial General Liability" policy, had a $20 million per occurrence liability limit. Id. Worthing visited Quest in South Dakota annually to discuss Quest's business and to provide quotes and was aware of Quest's air charter operations. Id Due to NationAir's representations about its expertise, skill, and knowledge in the aviation insurance field, Quest relied upon NationAir to procure appropriate types and amounts of insurance coverage. Id Quest believed that the commercial general liability policy would provide coverage for incidents involving aircraft it operated. Id. at 16.
In 2008, Quest began leasing a Cessna 421C (the Cessna) for use in its air charter operations. Id. The Cessna crashed on December 9, 2011, killing the three chartered passengers on board. Id. at 16-17. The estates of the three passengers filed wrongful death suits against Quest in South Dakota state court. Id. One of the estates has settled its claim against Quest, but two cases are still pending. Id at 17. The claims for damages in the wrongful death litigation in aggregate exceed $3 million. Id.
Quest submitted claims for coverage under both the Aviation Policy and its commercial general liability policy. Id. In January 2014, National Union informed Quest that the $20 million commercial general liability insurance did not cover the 2011 aircraft crash because of an exclusion in the policy for bodily injury caused by aircraft operated by Quest. Id. According to its complaint, Quest had not been informed of this exclusion by NationAir. Although Quest employees had previously reviewed the $20 million commercial general liability policy, they "did not recognize or understand" that it excluded coverage for incidents involving aircraft operated by Quest. Id. at 16-17. If Quest had known about the aviation exclusion, it would have "taken a different course of action with respect to its operations or its insurance coverage." Id. at 17-18. Because of the exclusion in the commercial general liability policy, Quest is uninsured for any damage awards aggregating more than $3 million relating to the 2011 aircraft crash. Id. National Union is defending Quest and providing coverage for the 2011 aircraft crash under the Aviation Policy, which has a $3 million liability limit.
Quest seeks judgment from this Court declaring that NationAir is liable for damages Quest may pay in the wrongful death litigation to the extent that they exceed $3 million dollars. Quest alleges NationAir breached a fiduciary duty and acted negligently by not advising Quest that the commercial general liability policy it procured would not provide coverage for incidents involving Quest-operated aircraft. Id. at 18-19.
NationAir's motion to dismiss is based on the fact that Quest has not been and may never be ordered to pay a judgment that exceeds the $3 million Aviation Policy coverage cap in the wrongful death litigation. NationAir argues that Quest does not have a claim against NationAir unless and until Quest is forced to pay a judgment (or a portion thereof) out of its own pocket in the wrongful death litigation. Three arguments form the basis of NationAir's motion to dismiss, all sprouting from the current absence of final judgment for damages exceeding $3 million: (1) Quest has not alleged damages, an essential element of the underlying torts that form the basis of this action; (2) the claim is not yet ripe for adjudication; and (3) a declaratory judgment action cannot or should not be used to bring tort claims. Because the second argument concerning ripeness raises a jurisdictional issue, this Court will address the ripeness argument first, followed by the argument that the essential element of damages is lacking, and then the propriety of issuing a declaratory judgment in this case.
A. Ripeness Argument
NationAir argues that if a claim has been stated, it is not yet ripe for adjudication due to the lack of concrete injury. The federal Declaratory Judgment Act requires that there be an "actual controversy, " 28 U.S.C. § 2201, which has been interpreted as merely emphasizing the case and controversy requirement embodied in Article III of the U.S. Constitution, Gopher Oil Co. v. Bunker, 84 F.3d 1047, 1050 (8th Cir. 1996); see also U.S. Const, art. Ill. § 2. Article III requires that there be "a substantial controversy, between parties having adverse legal interest, of sufficient immediacy and reality to warrant the issuance of a declaratory judgment." Md. Cas. Co. v. Pac. Coal & Oil Co.. 312 U.S. 270, 273 (1941). Just like any other action in federal court, an action for declaratory relief must be ripe for federal jurisdiction to exist. Pub. Serv. Comm'n of Utah v. Wycoff Co.. 344 U.S. 237, 242 (1952); Gopher Oil Co.. 84 F.3d at 1050.
Here, NationAir disputes Quest's claim that NationAir breached either its duty as an insurance broker or as a fiduciary in its procurement of Quest's insurance policies. The dispute is based on alleged actions that occurred in 2010 and 2011 that place the parties in adverse legal positions about whether a duty existed and, if so, whether it was breached. This case is factually developed enough that, even without an exact damage amount, a decision on the matter would not be an advisory opinion based on a hypothetical set of facts. See Pub. Serv. Comm'nof Utah, 344 U.S. at 242-43. Quest faces a legitimate risk of a damage award exceeding the $3 million policy limit in the wrongful death litigation, for which it believes NationAir ultimately should be responsible to pay. Quest and NationAir are in adverse legal positions sufficient to create a case and controversy. See Gopher Oil Co., 84 F.3d at 1051 (finding declaratory judgment action was ripe for adjudication where declaratory judgment ...