A Unique Coverage Argument: Case Is Not An “Actual Controversy” Under U.S. Constitution

Not very often in the thickets of the insurance coverage briar patch do you catch a glimpse of a constitutional argument, but that’s what happened in Pennsylvania Lumbermen Mutual Ins. Co. v. T.R. Miller Mill Co., 2006 WL 276964 (S.D. Ala. February 2, 2006).
T.R. Miller Mill Co. sustained millions of dollars in damages due to Hurricane Ivan in September 2004. Miller sought policy benefits from its insurer, which, after lengthy negotiations, issued a denial letter and filed a declaratory action seeking a court determination of non-coverage. In an argument I have not previously seen in an insurance case, Miller moved for a dismissal, claiming the federal district court could not decide the matter because there was no “actual controversy” as required for federal jurisdiction under Article III, section 2 of the U.S. Constitution.
The insurer’s denial of coverage, Miller said, meant there was no uncertainty left for the court to decide. What Miller apparently meant is that the insurer should have waited to be sued in state court, and Miller’s state court filing would have signaled there again was a controversy. The judge didn’t buy it. Among the many reasons why: the insurer could have removed any state court case to federal court based on diversity jurisdiction, the parties were engaged in ongoing negotiations before the lawsuit (indicating there was in fact a controversy), and Miller filed an answer in the case admitting there was a dispute over coverage.

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