In this episode of On Subrogation: Declaratory Actions, insurance attorney and Rathbone Group partner Jason Sullivan explains declaratory actions: definition, concept, purpose, and why understanding dec judgments is key to protecting your carrier’s right to subrogation recovery.
Declaratory actions, also referred to as dec actions or declaratory (dec) judgments, are when the parties in a subrogation lawsuit ask the court to determine the parties’ rights and responsibilities, most often under a contract.
At its core, a declaratory action is not about assigning fault for the loss but about clarifying legal obligations before/instead of paying damages. In subrogation, a declaratory action is often used as a strategy for the opposing party to limit exposure before defense costs begin to escalate. Understanding the purpose behind a declaratory action is critical for proper evaluation, management, and resolution of the subrogated matter.
Declaratory Actions in Auto Insurance Subrogation
For insured automotive subrogation disputes, the existing policy is a contract. However, the carrier may request a declaratory judgment to say that there was no coverage for the incident for some reason. Rather than denying the facts of the accident, the opposing carrier is asking the court to interpret the policy language itself. Resolving questions of coverage before defining liability can significantly change the process and potential of a subrogation claim.
As a subrogation lawyer or claims adjuster, if one of these comes across your desk, figure out exactly what it is. If there are no faults disputed, but you and your insured are listed as defendants, it is likely a declaratory action. All parties involved in a declaratory action include:
- Plaintiff
- Opposing insurance carrier
- Defendants
- Opposing carrier’s insured
- Driver of insured’s vehicle
- Subrogating carrier
- Subrogating carrier’s insured
- Any other parties in the loss that may have a claim to damages
In a subrogation case, declaratory actions trigger different response obligations, timelines, and strategies to consider than does a traditional auto insurance lawsuit. Misidentifying the nature of the pleading can result in missed defenses, default exposure, or unnecessary costs to engage in subrogation litigation.
In a dec pleading, the opposing carrier will not dispute the parties, the incident, or that all parties have legitimate claims. They will argue that there is some reason they should not be required to pay out those claims under the policy. Dec actions deliberately bypass fault analysis and instead focus on whether or not coverage was triggered. The carrier’s goal is not to defeat liability, but to eliminate or limit contractual responsibility for subrogation claims damages before liability even attaches.
The most common reasons cited in declaratory actions involve fraud, misrepresentation, or unresponsiveness, and the assertion that the vehicle was not covered under the policy. The contention is either –
- The policy was not activated by the incident/party actions, or
- The policy was voided by the incident/party actions.
In concise terms, the relief sought in the opposing carrier’s dec action is not monetary; they are pleading relief from responsibility for paying out damages. This is critical for a subrogation attorney to keep in mind; the outcome of a declaratory action is based entirely on legal interpretation, so they can determine whether the right to subrogation recovery exists at all.
Learn more about subrogation rights and process: Insurance Subrogation & Protecting the Right to Recovery.
Navigating Declaratory Judgments in a Subrogation Claim
For subrogation professionals, you always want to make sure that it is truly a declaratory action. If a claim for damages is left unanswered, you have exposure for your company and potentially bad faith action if your insured is also left exposed. Best practices include determining:
Is the Coverage Denial Clear or is the Language Ambiguous?
If the issue in the declaratory action is whether or not the opposing carrier had a duty to their insured, always look into arguments that there should have been coverage for the damages resulting from the incident. This can be difficult, because you were not the one filling out the policy applications and determining desired parameters.
Is the Opposing Carrier Acting in Good Faith or Purposefully Obscuring?
Study the policy and the details of the incident closely and ask yourself: Is the opposing party purposefully misconstruing policy language or trying to make a clear statement ambiguous in order to avoid covering the damages?
Declaratory actions often hinge on fine distinctions in exclusions, definitions, and endorsements. A disciplined comparison between policy language and the factual record can reveal whether the opposing carrier is selectively interpreting the policy language. Even seemingly minor inconsistencies can undermine a carrier’s request for declaratory relief, preserving the right to subrogation claims recovery. Obtaining subrogation recovery from a carrier is much easier than from an underinsured motorist.
Looking for More Free Resources on Subrogation Claims Recovery?
For more on subrogation, listen to our podcasts or visit our YouTube channel for Rathbone Group’s free educational resource for subrogation and insurance professionals, On Subrogation. If you can’t find a subrogation topic you’d like to learn more about, reach out at video@rathbonegroup.com or podcast@rathbonegroup.com to see your question answered in a future episode.
For more information about Rathbone Group’s legal services and our commitment to insurers’ right to subrogation recovery, inquire at info@rathbonegroup.com.