Coverage Analysis
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DECLARATORY JUDGMENT ACTIONS

The California Supreme Court ruled in Montrose Chemical Corporation v. Canadian Universal Ins. Co., 6 Cal. 4th 287, 861 P.2d 1153 (1993) that coverage litigation must be stayed on any issue that is of material consequence to the underlying claim, such that a ruling in a coverage suit might result in inconsistent results or prejudice to the policyholder. 

In Haskel, Inc. v. Aetna Casualty & Surety Co., 33 Cal. App.4th 963, 39 Cal. Rptr.2d 520, 529 (1995), review denied (Cal. June 29, 1995), the California Court of Appeals identified six factors which the trial court should examine to determine whether discovery requested in a declaratory judgment action should be permitted:

(1) What is the exact nature of the claims asserted in the underlying action?

(2) What defenses to coverage are asserted by the insurers, and to what extent, if at all, are they logically related to the liability issues raised in the underlying actions?

(3) What factual questions have to be resolved in order to sustain or defeat such defenses?

(4) What is the likely nature of the available evidence?

(5) To what extent, if at all, will [the insured] suffer prejudice by the enforced discovery of the evidence which tends to support or defeat its claim of coverage or the defenses raised by the insurers? and

(6) To what extent, if at all, will a confidentiality order realistically protect [the insured] from prejudicial disclosure?

A federal district court has since ruled in Legion Ins. Co. v. Wisconsin-California Forest Products, 2000 U.S. Dist. LEXIS 1600 (E.D. Cal. February 6, 2001) that a declaratory judgment action brought by a liability insurer to determine whether rainwater contamination  fell within the scope of a policy’s pollution exclusion did not have to be stayed pending the outcome of the underlying suit since it set forth an independently justiciable controversy and did not conflict with any pending “parallel” state proceeding.  In a separate opinion, the court ruled that the insurer did not violate California’s SLAPP statute by naming the underlying plaintiff in the DJ since the party was named solely for the purpose of making the court’s rulings binding and not for the purpose of discouraging the plaintiff from pursuing its rights.

An insurer may not be joined as a defendant in the main case against its insured, nor may coverage issues be resolved in the same case.  American Nat. Fire Ins. Co. v. Hungerford, 53 F.3d 1012 (9th Cir. 1995); Wyene v. Durrington, 247 P.2d 414, 415 (Cal. App. 1952). 

An insurer may intervene in the proceedings against its policyholder for the purpose of defending against those claims and preventing a default judgment from entering. Reliance Insurance Company v. Superior Court , HO20411 (Cal. App. October 25, 2000).  An insurer’s right to intervene in an action against the insured, for personal injury or property damage, arises as a result of Insurance Code Section 11580 which provides that a judgment creditor may proceed directly against any liability insurance an obtain satisfaction of the judgment up to the amount of the limits.  Clemmer v. Hartford Insurance Company, 22 Cal. 3d 865, 884 (1978)(Intervention is appropriate if judgment creditor has or will obtain a default judgment against the insured).  Where an insurer has failed to intervene in the underlying action or has not moved to set aside the default judgment, the insurer will thereafter be bound by the judgment.  Id. at 886.  Courts have not permitted intervention where the insurer is seeking to resolve coverage issues.  Kuperstein v. Superior Court, 204 Cal. App. 3d 598 (1988).

An insured’s nolo plea to the offense of willful assault did not collaterally estop him from litigating the availability of coverage for civil claims involving the same incident but was admissible evidence that the insured’s act was “willful” and therefore uninsurable under Section 533.  Century-National Ins. Co. v. Glenn, No. C028573 (Cal. App. February 9, 2001).

Forum nonconveniens is an equitable doctrine that is now codified in California at Code of Civil Procedure, Section 410.30.

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