| A declaratory judgment action may be brought by a plaintiff who is unsure of his legal right to recover from a defendant. This type of action is available to both an insured and an insurer to determine each party's rights, duties, obligations, and liabilities under an insurance policy.
Why seek declaratory judgment
An insured may bring the action to compel an insurer to provide coverage for a loss or to defend the insured in an underlying claim, whereas the insurer may bring the action seeking a declaration that it is not required to provide coverage or to defend the insured.
When to seek declaratory judgment
A declaratory judgment action must be ripe for consideration. An action is ripe for consideration if it is so far advanced that nothing remains for the court to do but to render a judgment.
An insurer may argue that the declaratory judgment action is not ripe for consideration if the underlying claim is unresolved. Some courts hold that a declaratory judgment action can be determined without considering the facts of the underlying claim, especially if the issue in the declaratory judgment action is whether the insurer has the duty to defend the insured in the underlying claim. Other courts, however, hold that declaratory judgment actions are not ripe if the underlying claim is unresolved.
An issue with respect to excess insurance arises if the insured brings a declaratory judgment action against an excess insurer, which asserts that the policy limits of the primary policy must be exhausted before a claim can be made under the excess policy. Generally, courts find that the potential for the exhaustion of the primary limits presents a ripe claim against the excess carrier.
Effect of declaratory judgment
A declaratory judgment by a court has the effect of being a final judgment of the parties' rights and liabilities. Copyright 2010 LexisNexis, a division of Reed Elsevier Inc. |