Hartford Fire Insurance Company v. Harleysville Mutual Insurance Company, No. 12-1761

Decided: November 15, 2013

The Fourth Circuit held that “for purposes of the nominal party exception to the rule of unanimity governing removal,” contractor G.R. Hammonds, Inc. (Hammonds) was a nominal party in a contribution suit between insurers, and Hammonds’ consent was therefore unnecessary to the removal of the suit to federal court.  Thus, the Fourth Circuit affirmed the holding of the United States District Court for the District of South Carolina.

Between 1995 and 2009, several insurance companies insured Hammonds for overlapping or subsequent periods. These companies included Hartford Fire Insurance Company (Hartford), Harleysville Mutual Insurance Company (Harleysville), and Assurance Company of America (Zurich).  Hammonds performed allegedly defective roofing work on a project in Charleston, South Carolina (Concord West Project), between 1998 and 2001.  After homeowners and their association sued Hammonds in state court (Concord West Action), Hartford, Harleysville, and Zurich agreed to split the costs of a million-dollar settlement by paying a third each—subject to the right to resolve the proper allocation through arbitration or litigation.  Harleysville then filed a declaratory judgment action in the United States District Court for the Eastern District of North Carolina (North Carolina Action), seeking a declaration of the rights and obligations of Hammonds’ various insurers with regard to the damages incurred during Hammonds’ Concord West Project, as well as Hammonds’ allegedly defective work on other projects.  Several days later, Hartford filed an action for declaratory judgment in a South Carolina state court (South Carolina Action), naming Hammonds and Hammonds’ other insurers as defendants; Hartford sought a declaration of each insurer’s share of the Concord West Action settlement, as well as equitable contribution from the other insurers in the event that the court found Hartford to have overpaid its share.  Harleysville removed the action to federal court.  The other defendant insurers consented to removal; however, Hammonds did not consent or object.  After removing the action, Harleysville filed a motion to dismiss, stating that the South Carolina Action duplicated the parallel North Carolina Action.  Hartford moved to remand, noting that Hammonds did not join in or consent to the notice of removal.  After finding that Hammonds was a nominal party, the district court dismissed the South Carolina Action under the first-to-file rule.  Hartford appealed the dismissal of this action.

Noting that it had “never defined a nominal party for purposes of the nominal party exception to the rule of unanimity necessary for removal,” the Fourth Circuit focused the practical inquiry on “whether the suit can be resolved without affecting the non-consenting nominal defendant in any reasonably foreseeable way.”  The Fourth Circuit noted that Hartford could not reasonably argue that Hammonds would be affected by the case’s outcome: Hartford did not seek a monetary judgment against Hammonds, and it did not seek non-declaratory injunctive relief—nor did any of the parties in the North Carolina Action.  Furthermore, Hammonds’ absence from the suit would not render the final judgment unfair to any of the parties.  The Fourth Circuit also noted the unlikelihood of a potential “whipsaw” effect that would deprive Hartford of due relief.

Full Opinion

– Stephen Sutherland

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