Recently, we published an article discussing who should pay to defend the dealership if it is sued. What if you and your lawyer determine that your insurance company should be defending you in a lawsuit and even indemnifying you, but it has refused to do so? What do you do?
You are not without remedies. The most effective remedy is a declaratory judgment action against your insurance company. What is that?
Normally, courts will not consider theoretical abstract questions. Courts want to adjudicate specific claims between parties. Most jurisdictions have enacted declaratory judgment statutes that allow the parties to submit a dispute over interpretation of a contract or other obligation for determination by a court.
A lawsuit against your insurance carrier for declaratory judgment is a request to the court to review the insurance policy of your carrier to determine whether the carrier is right in its decision not to extend coverage regarding a particular claim. File it when you believe your insurance carrier has wrongfully failed to provide the coverage to which you are entitled.
A word of warning: do not file a declaratory judgment action on insurance coverage lightly. Insurance companies often submit their in house determinations to turn down coverage to outside coverage counsel for a legal opinion. By the time you learn from your insurance company it is declining coverage, the decision may have been vetted by in house personnel and by an outside attorney. Seek legal advice from experienced counsel before determining whether you wish to proceed with a declaratory judgment action. The burden of overcoming the insurance company’s review process is significant.