                                RECOMMENDED FOR FULL-TEXT PUBLICATION
                                     Pursuant to Sixth Circuit Rule 206
                                             File Name: 07a0273p.06

                       UNITED STATES COURT OF APPEALS
                                        FOR THE SIXTH CIRCUIT
                                          _________________


                                                   X
                               Plaintiff-Appellee, -
 TRAVELERS INDEMNITY COMPANY,
                                                    -
                                                    -
                                                    -
                                                         No. 06-6038
          v.
                                                    ,
                                                     >
 BOWLING GREEN PROFESSIONAL ASSOCIATES, PLC,        -
                           Defendant-Appellant, -
                                                    -
                                                    -
                            Defendant-Appellee. -
 EVANSTON INSURANCE COMPANY,
                                                    -
                                                   N
                      Appeal from the United States District Court
                for the Western District of Kentucky at Bowling Green.
                No. 05-00171—Joseph H. McKinley, Jr., District Judge.
                                           Argued: April 18, 2007
                                    Decided and Filed: July 20, 2007
            Before: MERRITT and GRIFFIN, Circuit Judges; LAWSON, District Judge.*
                                            _________________
                                                  COUNSEL
ARGUED: Matthew P. Cook, COLE & MOORE, Bowling Green, Kentucky, for Appellant. W.
David Kiser, ACKERSON & YANN, Louisville, Kentucky, Steven Allred, HELMS, MULLIS &
WICKER, Charlotte, North Carolina, for Appellees. ON BRIEF: Matthew P. Cook, Dov Moore,
COLE & MOORE, Bowling Green, Kentucky, for Appellant. W. David Kiser, ACKERSON &
YANN, Louisville, Kentucky, Steven Allred, HELMS, MULLIS & WICKER, Charlotte, North
Carolina, Timothy L. Edelen, BELL, ORR, AYERS & MOORE, Bowling Green, Kentucky, for
Appellees.
                                            _________________
                                                OPINION
                                            _________________
       GRIFFIN, Circuit Judge. In this insurance coverage dispute, Bowling Green Professional
Associates (“Bowling Green”), an out-patient drug treatment facility in Kentucky, appeals a
declaratory judgment and summary judgment opinion and order of the district court. The crux of

        *
          The Honorable David M. Lawson, United States District Judge for the Eastern District of Michigan, sitting
by designation.


                                                        1
No. 06-6038              Travelers Indemnity Co. v. Bowling                                              Page 2
                         Green Prof. Assoc., et al.


this declaratory judgment action is whether either of two liability policies issued to Bowling Green
by two different insurers, Travelers Indemnity Company of Connecticut (“Travelers”), and Evanston
Insurance Company (“Evanston”), provide coverage to Bowling Green for a wrongful-death lawsuit
brought in Kentucky state court. Following Bowling Green’s demand to its insurers for litigation
defense and liability indemnity, Travelers filed this action in federal district court in the Western
District of Kentucky seeking a declaratory judgment of whether it owed a duty to defend or
indemnify Bowling Green in the underlying state court action. Evanston cross-claimed seeking a
similar declaration regarding the Caudill estate claims only. The district court exercised jurisdiction
and granted the insurers’ motions for declaratory judgment. Bowling Green timely appealed.
         For the reasons set forth below, we hold that the district court abused its discretion in
exercising declaratory judgment jurisdiction. Accordingly, we vacate the order and judgment of the
district court and remand with instructions to dismiss for lack of jurisdiction.
                                                       I.
        The following underlying facts are not in dispute. In November 2004, Jonas Wampler
received a methadone treatment as part of an ongoing treatment plan at the Bowling Green clinic
in Hazard, Kentucky. Following the treatment, he left the clinic in his car. As he was driving,
Wampler crossed into the oncoming traffic lane and struck head-on another vehicle, driven by
Stephanie Caudill. Both Wampler and Caudill perished in the collision. In a state court complaint
filed in August 2005, Caudill’s estate asserted a claim for wrongful death against both Bowling
Green and the Wampler estate. In response, Wampler’s estate asserted a third-party claim for
wrongful death in the same state court against Bowling Green and the physician, Dr. Raza, who
administered the methadone treatment to Wampler.
         Following the filing of the claims by Caudill’s and Wampler’s estates, Bowling Green sought
insurance defense and indemnity from both Evanston and Travelers pursuant to the aforementioned
insurance policies. Evanston agreed to defend the Wampler claims, but denied coverage for the
Caudill action on the grounds that it did not present a claim for injury to or death of a Bowling
Green patient. Travelers agreed to temporarily defend both the Wampler and Caudill estate actions,
pursuant to a reservation of rights. Thereafter, Travelers instituted the present action in federal
district court against both Bowling Green and Evanston to determine its duties, if any, under its
policy. Likewise, Evanston cross-claimed and counter-claimed in an effort to limit its obligations
to Bowling Green. All three parties filed cross-motions for summary judgment to resolve the matter.
In its memorandum opinion and order, the district court granted a declaratory judgment in favor of
both insurers, holding that Evanston owed no duty to defend or indemnify Bowling Green in the
Caudill action, and that Travelers owed no duty to defend or indemnify any of the claims asserted
by the Caudill and Wampler estates. Bowling Green timely appealed.
                                           The Insurance Policies
        Both Travelers and Evanston have insurance contracts with Bowling Green. Evanston issued
Bowling Green a professional liability insurance policy covering professional negligence. Evanston
does not dispute that it has a duty to indemnify and defend Bowling Green in the suit by Jonas1
Wampler’s estate because Wampler was a patient and the policy clearly covers claims by patients.
It does contest that it has a duty to indemnify and defend Bowling Green and Dr. Raza against
Caudill’s estate. Travelers was Bowling Green’s general liability insurance provider. Travelers



       1
           Evanston disputes any duty to indemnify Bowling Green or Dr. Raza for claims of punitive damages.
No. 06-6038           Travelers Indemnity Co. v. Bowling                                       Page 3
                      Green Prof. Assoc., et al.


contests that it has a duty to defend Bowling Green against the suits brought by Caudill’s and
Wampler’s estates.
       1.      Evanston’s Policy
         The policy issued by Evanston prescribed indemnification for “personal injury by reason of
any negligent act, error or omission in professional services rendered . . . .” As defined by the
policy, “personal injury” means “any physical or mental injury to or death of any patient . . . .” With
respect to the duty to defend, the policy states that Evanston “shall defend any claim or suit against
the Insured seeking damages to which this insurance applies . . . .” After exercising jurisdiction, the
district court concluded that there was no ambiguity in the language in the professional liability
policy disclaiming coverage for claims of injury by non-patients of the clinic and that Evanston was
not required to defend or indemnify Bowling Green against Caudill’s estate because Caudill was not
a “patient” of the clinic.
         Further, the district court concluded that the policy was not ambiguous in its exclusion of
coverage for punitive damages claims by Wampler’s estate. In the policy’s “Exclusions” section,
it states that:
       This policy does not apply:
                                                  ...
       (f)    to punitive or exemplary damages . . . except, that if a suit shall have been
       brought against the Insured for a claim falling within the coverage hereof, seeking
       both compensatory and punitive or exemplary damages . . . then the Company will
       afford a defense to such action, without liability, however, for such punitive or
       exemplary damages . . . .
                                                  ...
       (l)     to any claim arising out of general liability . . . .
        On appeal, Bowling Green argues that Evanston should defend the clinic in the suit by
Caudill because: (1) the policy with Evanston is ambiguous regarding whether Evanston is required
to defend Bowling Green in an action by a third party like Caudill; (2) Bowling Green “reasonably
expected” that the Evanston policy would require Evanston to defend it in a situation like the one
herein; and (3) public policy requires Evanston to defend the clinic in that to decide otherwise would
result in drug clinics being unwilling to operate in Kentucky.
        In response, Evanston argues that the plain language of the policy clearly excludes a duty
to defend a suit by a non-patient, and Caudill was not a patient of Bowling Green. Further, Evanston
argues that Bowling Green had no reasonable expectation that its medical malpractice policy would
require Evanston to defend against a suit brought by a third party like Caudill. Finally, Evanston
rejects the assertion that public policy requires it to defend the clinic and urges this court to rely
solely upon insurance law and contract interpretation.
       2.      Travelers’ Policy
       Travelers issued a general liability insurance policy to Bowling Green during the relevant
time period, providing among other things, “Commercial General Liability Coverage.” This
coverage is defined generally:
No. 06-6038           Travelers Indemnity Co. v. Bowling                                       Page 4
                      Green Prof. Assoc., et al.


       We will pay those sums that the insured becomes legally obligated to pay as damages
       because of “bodily injury” or “property damage” to which this insurance applies.
       We will have the right and duty to defend the insured against any “suit” seeking
       those damages. However, we will have no duty to defend the insured against any
       “suit” seeking damages for “bodily injury” or “property damage” to which this
       insurance does not apply.
        In granting Travelers’ motion for summary judgment, the district court concluded that
Travelers owed no duty to defend or indemnify Bowling Green by virtue of an exclusion in the
policy for “Health or Cosmetic Services.” The exclusion provides:
       This insurance does not apply to “bodily injury”, “property damage”, “personal
       injury” or “advertising injury” arising out of:
       1.      The rendering or failure to render:
       a.      Medical, surgical, dental, x-ray or nursing service or treatment, advice or
       instruction, or the related furnishing of food or beverages;
       b.      Any health or therapeutic service, treatment, advice or instruction;
                                                  ...
       3.      The furnishing or dispensing of drugs or medical, dental or surgical supplies
       or appliances . . . .
        The district court rejected Bowling Green’s argument that the exclusion did not cover
Caudill’s estate’s negligence claims and, accordingly, granted Travelers’ motion for summary
judgment. On appeal, Bowling Green argues that Travelers, as the provider of a general liability
policy, is responsible for defending claims arising from negligence unrelated to medical treatment
at the clinic. Bowling Green contends that any negligence in the act of allowing patient Wampler
to leave the premises after his methadone treatment and drive his car was unrelated to any medical
treatment or care and should be viewed independently from the medical treatment.
                                                 II.
         Neither party raised jurisdictional issues in their appellate briefs. Nevertheless, we
appropriately raised subject-matter jurisdictional issues sua sponte at oral argument and invited the
parties to file supplemental briefs on the issue. Ohio v. Doe, 433 F.3d 502, 506 (6th Cir. 2006). The
Declaratory Judgment Act provides that a district court “may declare the rights and other legal
relations of any interested party seeking such declaration . . . .” 28 U.S.C. § 2201(a) (emphasis
added). This language affords the district court “discretion in determining whether and when to
entertain an action under the Declaratory Judgment Act, even when the suit otherwise satisfies
subject matter jurisdictional prerequisites.” Adrian Energy Assocs. v. Michigan Pub. Serv. Comm’n,
481 F.3d 414, 421 (6th Cir. 2007) (quoting Wilton v. Seven Falls Co., 515 U.S. 277, 282 (1995)).
We review the district court’s decision to exercise jurisdiction over a declaratory judgment request
for an abuse of discretion. Adrian Energy, 481 F.3d at 421 (citing Scottsdale Ins. Co. v. Roumph,
211 F.3d 964, 967 (6th Cir. 2000)).
      In applying this general standard, we have long considered the five factors enumerated in
Grand Trunk W. R.R. Co. v. Consol. Rail Co., 746 F.2d 323, 326 (6th Cir. 1984):
       (1)     whether the declaratory action would settle the controversy;
No. 06-6038           Travelers Indemnity Co. v. Bowling                                         Page 5
                      Green Prof. Assoc., et al.


       (2)     whether the declaratory action would serve a useful purpose in clarifying the
       legal relations in issue;
       (3)    whether the declaratory remedy is being used merely for the purpose of
       “procedural fencing” or “to provide an arena for a race for res judicata;”
       (4)     whether the use of a declaratory action would increase friction between our
       federal and state courts and improperly encroach on state jurisdiction; and
       (5)     whether there is an alternative remedy which is better or more effective.
Id. More recently, in Scottsdale, we recognized three additional factors that bear on whether a
declaratory action would increase friction between federal and state courts:
       (1)     whether the underlying factual issues are important to an informed resolution
       of the case;
       (2)     whether the state trial court is in a better position to evaluate those factual
       issues than is the federal court; and
       (3)     whether there is a close nexus between the underlying factual and legal issues
       and state law and/or public policy, or whether federal common law or statutory law
       dictates a resolution of the declaratory judgment action.
Scottsdale Ins. Co., 211 F.3d at 968 (citing Wilton, 515 U.S. at 277). The district court considered
these factors and ultimately concluded that they weigh in favor of the exercise of declaratory
judgment jurisdiction. We disagree.
         Examining the first two factors, whether the judgment would settle the controversy and
whether the declaratory judgment action would serve a useful purpose in clarifying the legal
relations in issue, the district court held that while a declaratory judgment would not end the
controversy between Wampler, Caudill, and Bowling Green, it would settle the controversy
regarding the scope of insurance coverage under the Travelers and Evanston policies and clarify any
duty to defend Bowling Green. The district court therefore found the first two factors to favor the
exercise of federal court jurisdiction. We disagree. The district court’s decision could not settle the
controversy in the underlying state court litigation; thus, the first factor favors the court not
exercising jurisdiction. Additionally, although a declaratory judgment would “clarify the legal
relationship between [the insurer and the insured] pursuant to the insurance contracts, the judgment
would not clarify the legal relationship between [the parties] in the underlying state action.”
Bituminous Cas. Corp. v. J & L Lumber Co., Inc., 373 F.3d 807, 814 (6th Cir. 2004); see also
Allstate Ins. Co. v. Mercier, 913 F.2d 273, 275 (6th Cir. 1990) (first two of five factors not met in
a situation in which the related state court litigation was not an action against the insured in which
the insurer was a party), abrogated on other grounds by Wilton, 515 U.S. at 289-90.
        Granting the declaratory relief sought by Evanston and Travelers settles the scope of
insurance coverage under the respective policies and clarifies their obligation to defend Bowling
Green in the state court action, but it does nothing to settle the controversy or “clarify the legal
relationship” between the other parties. Significantly, parties who may be potentially affected by
the judgment, including the estates of Wample and Caudill, were not joined in the federal district
court action and are not parties now. As non-parties, the estates of Wample and Caudill are not
bound by the entry of a declaratory judgment. Thus, we conclude that the first two factors weigh
against federal jurisdiction.
No. 06-6038           Travelers Indemnity Co. v. Bowling                                        Page 6
                      Green Prof. Assoc., et al.


        With respect to the third factor, the district court determined correctly that no facts
demonstrate that the declaratory judgment action by Travelers was an attempt at “procedural
fencing” or exude the appearance of a “race” to judgment. Although no improper motive prompted
this action, this factor is neutral.
        Examining the fourth factor, the district court held that the state court would not be in a
significantly better position to evaluate the terms or exclusions in the insurance contracts because
both forums would apply Kentucky state law. However because Kentucky law is controlling, we
conclude that Kentucky courts are in the better position to apply and interpret its law on these issues.
         First, the issue raised – whether any negligence on the part of Bowling Green in allowing
Wampler to leave the facility and drive his car was part of its medical treatment of Wampler, and
is therefore “medical” negligence, or whether such action was a separate act of ordinary negligence
– involves purely questions of Kentucky law. Negligence questions are largely reserved to the
states. Here, it appears that the issue has not been squarely resolved under Kentucky law. The
district court relied on the case of Ratliff v. The Employers’ Liab. Assur. Corp., 515 S.W.2d 225
(Ky. Ct. App. 1974), to hold that “[t]he alleged negligent act of permitting Wampler to leave the
facility after treatment was not independent and mutually exclusive of the administration of the
methadone, but was instead related to [Bowling Green’s] medical treatment of Wampler.” However,
in Ratliff, Kentucky’s highest court (at the time, the Court of Appeals was Kentucky’s highest court)
determined that the general liability insurer was not responsible for a judgment for personal injury
suffered by a man who fell while treating as an in-patient at a hospital. The court concluded that
the hospital’s nurses were required to exercise their “expert professional ability” in determining
whether Ratliff was capable of returning safely from the nurse’s station to his bed. Ratliff, 515
S.W.2d at 230. Significant differences exist between a fall by a patient confined to the continuing
care of hospital staff and one who causes injury to another in a distant location after receiving
treatment and leaving the medical facility.
        Second, issues of “insurance contract interpretation are questions of state law with which
the Kentucky state courts are more familiar and, therefore, better able to resolve.” Bituminous, 373
F.3d at 815. We have often observed that “‘[s]tates regulate insurance companies for the protection
of their residents, and state courts are best situated to identify and enforce the public policies that
form the foundation of such regulation.’” Id. (quoting Mercier, 913 F.2d at 279). This concern has
been frequently applied in cases of insurance contract interpretation and we have held on a number
of occasions that a district court should stay or dismiss complaints filed by insurance companies
seeking a declaratory judgment as to their underlying state court lawsuits. See, e.g., Bituminous, 373
F.3d at 812-13; Scottsdale, 211 F.3d at 968-69; Employers’ Fire Ins. Co. v. Danis Bldg. Constr. Co.,
No. 99-3982, 2000 WL 1234321 (6th Cir. Aug. 22, 2000) (unpublished); Omaha Prop. & Cas. Ins.
Co. v. Johnson, 923 F.2d 446, 448 (6th Cir. 1991); Mercier, 913 F.2d at 277; Am. Home Ass. Co.
v. Evans, 791 F.2d 61, 63 (6th Cir. 1986); Manley, Bennett, McDonald & Co. v. St. Paul Fire &
Marine Ins. Co., 791 F.2d 460, 462 (6th Cir. 1986).
        The troubling lack of clearly-settled Kentucky precedent on the issue is compounded by the
lack of a factual record. The record before this court does not reveal what Wampler may have told
the staff about his ability to drive, whether he concealed any impairment, or whether he told the staff
that he had a ride waiting for him outside the clinic. The factual record is inadequate to make a
determination of whether the alleged negligence was a lapse in medical judgment by the clinic staff.
        The three additional factors identified in Scottsdale and applied as subsections of the fourth
factor in Bituminous also weigh in favor of dismissal of the federal court action. See Bituminous,
373 F.3d at 814. The underlying factual issues in the state court litigation may be very important
in establishing whether any negligence on the part of Bowling Green would be considered medical
No. 06-6038           Travelers Indemnity Co. v. Bowling                                       Page 7
                      Green Prof. Assoc., et al.


negligence related to Wampler’s treatment or a separate act of ordinary negligence. The parties
agreed to submit the motions for summary judgment on the declaratory judgment without discovery,
resulting in insufficient facts to know what transpired inside the clinic on the morning of
November 13, 2004, or to legally determine whether the events constituted medical negligence
within the meaning of Travelers’ insurance policy. In addition, we conclude that the “close nexus”
between the underlying factual issues and state law and public policy favor a decision by the state
court instead of the federal court. This is not a case where federal law will come into play, and,
therefore, a state court forum is preferable.
        Finally, with respect to the fifth factor, the district court held that alternative remedies to
federal jurisdiction existed pursuant to Kentucky’s declaration of rights procedure set forth in KY.
REV. STAT. § 418.040. Further, insurers could file an indemnity action at the conclusion of the
underlying state action. As a result, the district court held that this factor weighed against federal
discretionary jurisdiction. We agree.
                                                 III.
     For these reasons, we vacate the district court’s judgment and order and opinion granting
summary judgment and remand with instructions to dismiss for lack of jurisdiction.
