GOLDEN EAGLE INSURANCE COMPANY, Plaintiff-Appellant, v. TRAVELERS COMPANIES, Defendant-Appellee

Golden Eagle Insurance Company brought this action in state court seeking a declaratory judgment that Charter Oak Fire Insurance Company had a duty to defend Aero-Crete, Inc. in a construction defect case. Charter Oak removed the action to the feder al district court. The district court granted summary judgment for Charter Oak. Golden Eagle appeals. The principal issue on appeal is whether the district court properly exercised its diversity jurisdiction over this declaratory relief action involving state law. See, e.g., Employers Reinsurance Corp. v. Karussos, 65 F.3d 796 (9th Cir.1995).

We hold that the district court erred in exercising its jurisdiction to hear this case. The ease is a quintessential declaratory relief action between insurance companies arguing over a duty to defend the insured under state law. In such a case the district court is required to exercise its discretion under the Declaratory Judgment Act, 28 U.S.C. § 2201 , and decide whether to hear the case. The district court did not do this. It simply decided the case. The court erred in so doing, but this error is harmless because, except for this appeal, the case has been completed and the district court…