Plaintiff appeals from an order of the United States District Court for the Southern District of New York (Leval, J.) entered July 21, 1986 that dismissed declaratory judgment action against the liquidation of an insolvent New York insurance company. The District Court held that it should abstain under Colorado River Water Conservation District v. United States, 424 U.S. 800, 47 L. Ed. 2d 483, 96 S. Ct. 1236 (1976). We affirm on the basis that abstention was proper under Burford v. Sun Oil Co., 319 U.S. 315, 87 L. Ed. 1424, 63 S. Ct. 1098 (1943). Affirmed.
Before: KAUFMAN, NEWMAN and PRATT, Circuit Judges.
We are required in this case to revisit a recurring tension in our dual system of justice. The federal courts have a fundamental obligation to adjudicate controversies within their jurisdiction. Yet they also have a duty to abstain from doing so when the case falls within one of the narrow recognized categories of instances in which, because of related state proceedings, action by the federal courts would be thoroughly unproductive.
We have concluded that this is one of those rare cases in which the federal courts should, in deference to a state forum, withhold access from a suitor properly invoking their jurisdiction. Specifically, because continuation of the federal action here would disrupt New York's unified administrative and judicial framework for the administration of the estates of insolvent insurance companies, we hold that the federal plaintiff must, in the first instance at least, seek relief from the New York courts.
The relevant facts are straightforward and not in dispute. Law Enforcement Insurance Company, Ltd. ("LEICL") is a Bermuda insurance company that was established in 1977 to provide coverage to law enforcement personnel against liabilities arising from civil rights actions.
In December of 1983, LEICL entered into an agreement with Ideal Mutual Insurance company ("Ideal"), a New York company. The parties agree that this agreement required Ideal to assume the obligation to provide reinsurance on various LEICL policies. In addition, LEICL claims that the agreement required Ideal to assume LEICL's direct insurance obligation on the policies that had been issued during the year 1977.
In late December of 1983, the superintendent of Insurance of the State of York ("Superintendent") commenced a proceeding in the Supreme Court, New York County, pursuant to N.Y. Ins. L. § 7402 alleging that Ideal was insolvent and asking to be named as rehabilitator. An order to this effect was entered by that court on December 26, 1984.
In January of 1985, having concluded that further attempts to rehabilitate Ideal would be futile, the Superintendent sought from the same court an order pursuant to N.Y. Ins. L. § 7417 terminating the rehabilitation proceeding and vesting the business of Ideal in himself for the purpose of liquidating it. On February 7, 1985, the court entered the requested order, which, pursuant to N.Y. Ins. L. § 7419, included a provision enjoining all persons with claims against Ideal "from bringing or further prosecuting any action at law, suit in equity, special or other proceeding against the said corporation or its estate, or the Superintendent and his successors in office, as Liquidator thereof."
LEICL informed the Superintendent of its view that Ideal was obligated under the 1983 agreement to defend any pay claims on the 1977 policies, and received in response a letter rejecting its position.
On February 7, 1986, LEICL filed an action against the Superintendent in the United States District Court for the Southern District of New York. Premising jurisdiction upon diversity of citizenship, the action sought a declaration that Ideal was obligated as a direct insurer on the 1977 policies.
The Superintendent responded to the complaint by moving for an order dismissing the action if deference to the state liquidation proceedings. After full briefing and oral argument, the district court granted the motion. In an opinion reported at 640 F. Supp. 271 (S.D.N.Y. 1986), it held that, under the doctrine of Colorado River Water Conservation District v. United States, 424 U.S. 800, 47 L. ...