United States District Court, D. New Jersey
December 12, 2005.
THE TRAVELERS INDEMNITY COMPANY, Plaintiff,
DAMMANN & CO., INC., et. al, Defendant.
The opinion of the court was delivered by: DICKINSON DEBEVOISE, Senior District Judge
I. PROCEDURAL HISTORY
Plaintiff, The Travelers Indemnity Company ("Travelers"), filed
a complaint seeking a declaration of non-liability under two
insurance policies which it issued to Defendant, Dammann & Co.,
Inc. ("Dammann"). Travelers contends that Defendant,
International Flavors & Fragrances, Inc. ("IFF") should be a
party to this action because it raised a justiciable controversy
by seeking to collect from Dammann damages that it suffered when
Dammann allegedly supplied it with contaminated vanilla beans.
IFF contends that it should not be a party to this suit because
the controversy, if any, is between Travelers, as the insurance
carrier, and Dammann, as the insured. Thus, IFF filed a motion to
dismiss Travelers' claim against it.
The motion was referred to the Honorable G. Donald Haneke,
United States Magistrate Judge, pursuant to Fed.R.Civ.P. 72(b)
and L. Civ. R. 72.1(c)(2), such that he could prepare a
recommendation for disposition of the matter. After Judge Haneke
issued his Report and Recommendation ("Report"), in which he
recommended that the complaint be dismissed as against IFF,
Travelers submitted its opposition to the Report, objecting to
nearly all of Judge Haneke's findings.
II. FACTUAL BACKGROUND
The facts of this case have already been discussed in Judge
Haneke's Report. As such, a complete reiteration is unnecessary.
It need only be noted that upon discovering the contaminated
vanilla beans, IFF sent a letter to Dammann characterized as a
"formal claim . . . for the full and immediate compensation . . . of $5,189,924." It
is that letter which forms the basis for Travelers declaratory
action, though IFF has not yet filed suit against Dammann.
In his Report, Judge Haneke determined that there is no actual
controversy between Travelers and IFF and that IFF is not a
necessary party to Traveler's claim against Dammann. Furthermore,
Judge Haneke found that Travelers' attempt to join IFF in its
request for declaratory judgment is contrary to the purposes of
the Declaratory Judgment Act. Therefore, he recommended that
IFF's motion be granted and Traveler's claim against IFF be
III. STANDARD OF REVIEW
Under Fed.R.Civ.P. 72(b) and L. Civ. R. 72.1(c)(2), when a
party objects to the Magistrate Judge's report, a District Judge
must make a de novo determination of those portions of the report
to which the party has objected. Travelers has objected to nearly
all of Judge Haneke's report and thus each of his findings must
be addressed. As matters outside the pleading will be considered,
this motion will be treated as one for summary judgment.
Summary judgment is appropriate when the record "show[s] that
there is no genuine issue as to any material fact and that the
moving party is entitled to judgment as a matter of law,"
Fed.R.Civ.P. 56(c). A dispute is "genuine" if "the evidence is such
that a reasonable jury could return a verdict for the nonmoving
party," See Anderson v. Liberty Lobby, Inc., 477 U.S. 242,
248 (1986). A fact is "material" only if it might affect the
outcome of the suit under the applicable rule of law, Id.
Disputes over irrelevant or unnecessary facts will not preclude a
grant of summary judgment, Id. In deciding whether there is a
disputed issue of material fact, the court must view the evidence
in favor of the nonmoving party by extending any reasonable
favorable inference to that party; in other words, "the nonmoving
party's evidence `is to be believed, and all justifiable inferences are to be drawn in
[that party's] favor,'" Hunt v. Cromartie, 526 U.S. 541, 552
(1999), quoting, Anderson, 477 U.S. at 255. But where the
nonmoving party bears the burden of persuasion at trial, "the
burden on the moving party may be discharged by `showing' that
is, pointing out to the district court that there is an absence
of evidence to support the nonmoving party's case," Celotex
Corp. v. Catrett, 477 U.S. 317, 325 (U.S. 1986).
Under the Declaratory Judgment Act, a party seeking declaratory
judgment must demonstrate the existence of an actual case or
controversy. 28 U.S.C. 2201(a); Cardinal Chem. Co. v. Morton
Int'l, Inc., 508 U.S. 83, 95 (1993). "The question in each case
is whether the facts alleged show that there is a substantial
controversy, between parties having adverse legal interests, `of
sufficient immediacy and reality to justify judicial
resolution.'" Peachlum v. York, Pa., 333 F.3d 429, 433 (3d Cir.
2003). "The difference between an abstract question and a
`controversy' contemplated by the Declaratory Judgment Act is
necessarily one of degree, and it would be difficult, if it would
be possible, to fashion a precise test for determining in every
case whether there is such a controversy." Maryland Casualty Co.
v. Pacific Coal & Oil Co., 312 U.S. 270, 273 (U.S. 1941).
Courts have frequently found that in cases regarding liability
insurance and a carrier's obligation to indemnify the insured, an
actual controversy exists once the events underlying the
insured's liability have occurred. See e.g., Riehl v.
Travelers Ins. Co., 772 F.2d 19, 23 (3d Cir. 1985); Simmonds
Aerocessories, Ltd. v. Elastic Stop Nut Corp. of America,
275 F.2d 485, 490 (3d Cir. 1958). A party need not wait until an
underlying suit has been filed before it seeks declaratory relief.
In the present case, an actual controversy arises between
Travelers and Dammann once underlying events have called into
question Travelers's obligation to indemnify Dammann. Such events
have already occurred as IFF not only received and is aware of
the contaminated beans but also sent a letter to Dammann
requesting payment for the damage incurred. Thus, there is no
question that an actual controversy exists between Travelers and
However, Judge Haneke determined that there is no controversy
between IFF and Travelers because IFF is not insured by Travelers
nor has it filed a claim against a party insured by Travelers.
Thus, Judge Haneke concluded that there is no controversy of
sufficient immediacy and reality to justify judicial resolution.
Indeed, under New Jersey law, IFF is precluded from filing a
claim against Travelers unless it first succeeds in a claim
against Dammann and is thereafter unable to collect from Dammann.
As such, Travelers's controversy with IFF is more tenuous than
its controversy with Dammann as it depends on the possibility
that IFF might, at some point in the future, file a claim against
But courts have found that such circumstances constitute an
actual controversy. In Pacific Coal, the court found that an
actual controversy existed where an injured party filed suit
against an insured party and the insured claimed that its
insurance policy covered its liability. 312 U.S. at 274. In that
case, much like the present case, the injured party would have
been entitled to file a claim against the insurance company if
the injured party was unable to collect on a judgment against the
insured. Id. The court held that under those circumstances, the
possibility that the injured party would later proceed against
the carrier was sufficient to establish an actual controversy.
Id. Thus, in the present case there exists an actual
controversy between Travelers and IFF.
Even if there was not a controversy between Travelers and IFF,
Travelers would be entitled to implead IFF in an action against
Dammann because IFF is a necessary party under Fed.R.Civ.P.
19(a). Under that Rule, a party shall be joined if
the [party] claims an interest relating to the
subject of the action and is so situated that the
disposition of the action in the [party's] absence
may . . . leave any of the persons already parties
subject to a substantial risk of incurring double,
multiple, or otherwise inconsistent obligations by
reason of the claimed interest.
Courts have frequently held that injured parties are necessary
in declaratory judgment actions where questions of liability
insurance coverage are litigated. See e.g., Pacific Coal,
312 U.S. at 274 (reasoning that it is necessary to bind the injured
party to the judgment rendered in the declaratory judgment action
to prevent inconsistent rulings); Maryland Cas. Co. v. Consumers
Finance Services, Inc., 101 F.2d 514, 515 (3d Cir. 1938);
Flashner Medical Partnership v. Marketing Management, Inc.,
189 Ill. App. 3d 45, 53 (Ill.App.Ct. 1989) (stating that "[w]here
questions of liability insurance coverage are litigated,
claimants against the insured are ordinarily necessary parties to
In the present case, Travelers could be subject to inconsistent
obligations if it was forced to proceed without IFF in the
present action and is later forced to defend a claim brought by
IFF in an attempt to recover a judgment that Dammann left
unsatisfied. Therefore, IFF is a necessary party to the present
Judge Haneke further agreed with IFF's contention that
Travelers's claim against it contradicts the purpose of the
Declaratory Judgment Act. Both Judge Haneke and IFF cite to Sun
Oil Co. v. Transcontinental Gas Pipeline Corp.,
108 F. Supp. 280, 282 (E.D. Pa. 1952) for the proposition that the Declaratory Judgment Act is not intended to
allow prospective negligence action defendants to obtain a
declaration of nonliability. While that statement appears to
support IFF's position in this matter, it is revised by the
court's very next sentence: "`Construction and interpretation of
written instruments (including contracts, insurance policies
. . .) is the principle function of a declaratory judgment
proceeding.'" Id. In light of this more accurate representation
of the court's discussion of the Declaratory Judgment Act's
purpose, Sun Oil does not support IFF's position in this
In fact, Sun Oil is distinguishable because that case
involved a tortfeasor that filed a declaratory judgment action
because it knew it was about to be sued in another forum and was
attempting to preempt the injured party. Unlike that case, the
present action was filed by an insurance company that is asking
the court to interpret two policies. As stated in Sun Oil, such
an action is entirely appropriate under the Declaratory Judgment
For the reasons set forth above, the court will not accept
Judge Haneke's Report and IFF's motion for summary judgment will
be denied. The court will enter an order implementing this
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