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Supreme Court Re-Shifts Burdens of American Home Products, Then Refuses to Defer to First-Filed Action in a State Whose Insurance Law is Less Favorable In Awarding Coverage to Polluters

The Supreme Court delivered a one-two punch in last week’s decision in Sensient Colors, Inc. v. Allstate Ins. Co., et al., __ N.J. __ (2008), Docket No. A-99/100/101-06 (Jan. 29, 2008). First, it revamped the rules for determining the comity stay. Then, applying those rules, it held that a second-filed action should proceed in New Jersey, in part because the polluting policyholder might be less able to obtain insurance reimbursement for the cost of cleanup of its contaminated property in South Jersey if the action were adjudicated in New York under New York law.

Revising The American Home Products Test

In the battle of the forums (or fora if you remember your Latin), the long-standing general rule has been that courts defer to the first-filed action, unless a party can overcome the first-filed presumption and demonstrate the action should be adjudicated in the second-filed forum based on the particular circumstances of the case. For more than 10 years, American Home Products Corp. v. Adriatic Ins. Co., 286 N.J. Super. 24 (App. Div. 1995), has provided the guiding framework on the first-filed doctrine. In its first opportunity to review the American Home Products analysis, the New Jersey Supreme Court modified the Appellate Division’s paradigm.

American Home Products established a three-prong test to determine whether a court should defer to a first-filed action or retain jurisdiction over a subsequently filed suit. Under this test, a party moving for a comity stay or dismissal of a second-filed action in New Jersey has to establish that: (1) there is a first-filed action in other state; (2) both cases involve substantially the same parties, claims and legal issues; and (3) the plaintiff in the second-filed action will have the opportunity for adequate relief in the first-filed jurisdiction. American Home Products, 286 N.J. Super. at 37. Once these are established, the burden shifts to the other party who must demonstrate special equities for allowing the second-filed action to proceed. Id.

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