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Insurance Law

: INSURANCE LAW NOTES

Declaratory Judgment Action Stayed; Claim Potentially Covered

By Richard Victoria

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When a liability policyholder is sued and tenders the lawsuit to its insurer demanding that the insurer provide a defense in an underlying suit, if there is any doubt about whether the claims set forth in the suit are covered under the policy, an insurer may provide a defense to the policyholder under a reservation of rights and simultaneously seek a declaratory judgment that the insurer is not required to defend. As I discussed here, when an insurer succeeds in such an action, it may also attempt to seek reimbursement of defense costs paid under its reservation of rights (though the insurer will probably be unsuccessful if the policy does not provide for such reimbursement.)

However, what happens when the insurer files the declaratory judgment insurance coverage action and, instead of engaging in the substantive coverage dispute, the policyholder asks the Court to stay or suspend the declaratory judgment action? This scenario raises some interesting issues and implications, including the prospect of using a Motion to Stay as a weapon against an insurer defending under a reservation of rights. Could such a motion be used to prolong the insurer's defense?

In Allstate Ins. Co. v. Cooper, 07-00974 (W.D. Pa., May 7, 2008), Judge Nora Barry Fischer addressed a Motion to Stay under similar circumstances and stayed the action after determining that the underlying claims were potentially covered. Her Memorandum Order is typically well written and interesting and worth a read. If you have a PACER or CM/ECF account, you can access the opinion here for free.

Full post as published by INSURANCE LAW NOTES on September 08, 2008 (boomark / email).