(Article from Insurance Law Alert, September 2025)
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Holding
A Florida district court erred in dismissing an insurer’s duty to defend claim for lack of ripeness and in refusing to exercise jurisdiction over a rescission claim based on an incorrect abstention standard. Nautilus Ins. Co. v. Captain Pip’s Holdings, Inc., 2025 U. S. App. LEXIS 18911 (11th Cir. July 29, 2025).
Background
Captain Pip’s was sued for negligence and vicarious liability after a parasailing incident resulted in the death of a minor. Nautilus, the company’s liability insurer, defended the suit under a reservation of rights. Nautilus then filed suit against Captain Pip’s and other entities, seeking a declaration of no coverage on several bases, as well as recission based on alleged misrepresentations in Captain Pip’s renewal application.
Captain Pip’s moved to dismiss based on lack of subject matter jurisdiction, or alternatively to stay claims for declaratory relief as to the duty to indemnify and rescission. A Florida district court granted the motion, ruling that the coverage claim was not ripe and declining to hear the rescission claim based on abstention principles. The Eleventh Circuit reversed.
Decision
Applying an abuse of discretion standard to review the district court’s dismissal of the declaratory judgment claims, the Eleventh Circuit upheld the district court’s ruling that the question of Nautilus’s indemnity was not ripe since the underlying action was ongoing. However, the Eleventh Circuit held that the district court erred in dismissing the duty to defend claims and remanded the matter for a determination of Nautilus’s defense obligations.
With respect to the rescission claim, the Eleventh Circuit noted the absence of a consensus among federal circuit courts as to the proper abstention test to apply in mixed actions, such as that presented here, which involve both declaratory and coercive claims. The district court had based its abstention ruling on the standard applicable to declaratory relief actions, which offers wide leeway for judicial discretion, with consideration of “practicality and wise judicial administration.” Finding this holding erroneous, the Eleventh Circuit ruled that the district court should have applied the Colorado River abstention doctrine, which holds that abstention is “an extraordinary and narrow exception to the duty of a District Court to adjudicate a controversy properly before it.” Colorado River Water Conservation Dist. v. U.S., 424 U.S. 800 (1976). The Eleventh Circuit therefore ruled that the district court had a duty to exercise jurisdiction subject only to Colorado River abstention.
Comments
The Eleventh Circuit noted that other federal circuit courts have applied various tests to determine whether abstention is warranted in mixed actions, including an analysis of whether the declaratory claims can exist independently of the coercive claims, or whether “the heart of the action” is declaratory or coercive. The Eleventh Circuit declined to endorse any specific test and instead held that the district court should have applied Colorado River abstention regardless of the approach.
As reported in our June 2025 Alert, the Sixth Circuit similarly addressed the standard for abstention over a mixed action, ruling that when an action seeks both damages and declaratory relief, and there is no basis for abstention as to the damages claims, it would “most likely” be an abuse of discretion for the court to abstain on the declaratory claims. Fire-Dex, LLC v. Admiral Ins. Co., 2025 U.S. App. LEXIS 13372 (6th Cir. June 2, 2025).