Can a Third Party Seek a Declaration of an Insurer's Duties Under Its Policy?

by Nexsen Pruet, PLLC
Contact

Nexsen Pruet, PLLC

“Be careful what you ask for in your declaratory judgment action” could have been an appropriate subtitle.

Either title would fit the United States District Court’s look at whether a party that is not an insured may seek a declaration regarding an insurer’s duties under its policy. American Southern Insurance Company v. Affordable Home Improvements, et al.  2018 WL 2087229 (May 4, 2018).

This matter arises from an underlying construction defect case wherein Ocean Keyes Property Owners Association sued various parties, including Ocean Keyes Development, Keye Construction (Ocean Keyes defendants) and Affordable Home Improvements (AHI), a subcontractor on the project. American Southern Insurance (ASIC) issued a commercial general liability insurance policy to AHI, and is providing a defense to it in the underlying action. ASIC filed this action for declaratory judgment against AHI and the other parties to the underlying action. While AHI failed to answer or otherwise appear, the Ocean Keyes defendants filed a counterclaim also seeking the court’s determination of ASIC’s duties under the policy it issued to AHI. ASIC filed a 12(b)(6) motion to dismiss the counterclaims, arguing the counterclaimants failed to state a claim as they are not parties to the insurance contract. ASIC also argued the issue of its duty to indemnify was not ripe for adjudication. The matter was before the court on ASIC’s motion and the court determined the matter based upon the parties’ briefs. 

Even though the Ocean Keyes defendants are not parties to the insurance policy in question, the court found they met the “case or controversy” test for constitutional standing. The Ocean Keyes defendants established facts that, if proven, supported potential financial loss, particularly if the losses in the underlying case are not covered. Further, the Ocean Keyes defendants met the substantial controversy test under the Declaratory Judgment Act; they adequately demonstrated the parties’ adverse legal interests that could potentially be addressed by a declaratory judgment action. 

As the defendants were not the named insured and the named insured did not appear in the suit, ASIC argued that the real question in the action was if Ocean Keyes could even seek declaratory relief. The Ocean Keyes defendants argued they indeed had standing, as third party beneficiaries to the policy in question, and have stated a valid claim for relief in their counterclaim.

The court, in response to the parties’ arguments, initially pointed out that ASIC sought a determination in this action as to whether coverage exists for AHI for the claims in the underlying action and, if so, its obligations owed to AHI and the other defendants. And while the court found the Ocean Keyes defendants could suffer financial exposure, particularly if it is ultimately determined that ASIC owes no duty to indemnify, the court largely relied on the logic that the counterclaims really sought the same relief as requested by ASIC; a determination of ASIC’s duties under its policy. 

The court determined that because the matter before it was pursuant to a 12(b)(6) motion, the Ocean Keyes defendants stated a claim for relief. Further, in response to ASIC’s argument that the issue of its obligation to indemnify was premature, the court once again looked to ASIC’s pleading, wherein it sought a determination as to its obligations relative to indemnity

The court cautiously emphasized that this matter was before it upon a motion to dismiss rather than a motion for summary judgment where the court’s evaluation may differ. Moreover, despite the fact that the Ocean Keyes defendants were not parties to the policy at issue, the court was drawn to the reality of the potential harm those defendants could suffer in the underlying action based upon the alleged acts or omissions of AHI, particularly if it is ultimately determined that AHI is not covered. Even more significantly, this opinion raises questions for practitioners: how far should an insured extend its request for relief? While standard fare, should the insurer seek the court’s determination of any obligations to parties other than its insured or is this opinion a lesson in pleading?

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Nexsen Pruet, PLLC | Attorney Advertising

Written by:

Nexsen Pruet, PLLC
Contact
more
less

Nexsen Pruet, PLLC on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.