Aetna Casualty & Surety Company v. Yeatts

United States Court of Appeals for the Fourth Circuit · 1938 · Civil Procedure

99 F.2d 665 (1938)

Updated July 29, 2026

Civil ProcedureDeclaratory JudgmentInjunctionsFederal JurisdictionInsurance Coverageanti-injunctionduty to defendduty to indemnify

Facts

Aetna issued Dr. Yeatts a policy agreeing to defend and indemnify him up to $5,000 for malpractice claims, except where it was legally established that the damage was caused while he was engaged in or in consequence of a criminal act. After the administrator of Elizabeth Burton sued Yeatts in Virginia state court alleging negligent surgery causing death, Aetna filed a federal action alleging that Yeatts had actually attempted a criminal abortion that caused Burton's death and had also made an unauthorized payment to Burton's father that harmed the defense. Yeatts denied performing an abortion, demanded that Aetna defend him under the policy, and refused to sign a non-waiver agreement. Aetna sought both a declaration of non-coverage and an injunction halting the state court action while the federal court determined coverage.

Issue

Did the district court have jurisdiction to hear the insurer's declaratory judgment action over policy coverage and duty to defend, and if so, did it err by refusing to enjoin the pending state tort action? More specifically, could the federal court decide the coverage dispute while allowing the state in personam action to proceed?

Rule

When an insurer and insured have an actual present controversy over the insurer's contractual duty to defend and indemnify, a federal court may exercise jurisdiction over a declaratory judgment action to determine coverage. But a federal court should not enjoin a pending state court action when both suits are in personam and the state proceeding neither involves property within the federal court's control nor threatens to defeat or impair the federal court's jurisdiction.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

Larkfield Mutual Insurance issued a liability policy to Nora Benton, a dentist in Richmond, Virginia. After a patient sued Benton in Virginia state court for negligent treatment, Larkfield filed a diversity action in federal court alleging the injury arose from Benton's criminal sale of narcotics and seeking a declaration that it had no duty to defend or indemnify her; Benton demanded an immediate defense under the policy.

Is there an actual controversy sufficient for the federal court to entertain the declaratory judgment action?

Explanation. The majority held that when the insurer must decide now whether it is obligated to defend, and the parties are presently disputing both defense and coverage, an actual controversy exists. The court rejected the idea that the dispute must await a final judgment in the tort suit. The controversy is between insurer and insured over contractual obligations presently asserted and denied. (Derived from Aetna Casualty & Surety Company v. Yeatts (1938).)