Most of the time, an individual who suffers an injury in a vehicle accident will pursue a legal claim against the at-fault driver for compensation. If the at-fault driver has liability insurance, the policy typically requires them aid in the driver’s defense and protect them from any liability claims.
One unique exception to this general rule involves declaratory judgments. A declaratory judgment is a lawsuit filed by the insurer instead of the insured driver. In a declaratory judgment, the insurer may ask the court to determine whether or not the accident in question is covered under the policy. Insurance companies use these suits as a tool to determine whether they are obligated to pay out on a claim without risking allegations of bad faith from their insured driver. If the court finds the policy does not apply, the insurance company can refuse to defend their insured driver or shield them from liability claims.
When Declaratory Judgement Lawsuits Are Appropriate
In Georgia, the time frame an insurance company has to file a declaratory judgment action varies. If the insurer intends to file this action in state court, they must do so before they deny the underlying insurance claim. Once an insurance claim is denied, the Georgia Court of Appeals has held that there is no longer a “justiciable controversy” for the courts to decide.
Lawsuits in federal court are treated a little differently. Federal cases operate under federal law, which takes a broader view of the declaratory judgment process. Previously, federal courts have held that insurance companies may file declaratory judgment actions after they have denied a liability claim.
In some cases, an insured driver will file a lawsuit prior to the initiation of a declaratory judgment. This can happen after a suit is filed by one driver against the other. Typically, an insurance company that files a declaratory judgment action during ongoing litigation will seek to join the declaratory judgment action to the underlying lawsuit. In this lawsuit, the insurance company frequently seeks to stay the case until the completion of the declaratory judgment action. This allows the courts to decide the issue of coverage before the insurance company is forced to decide if they will defend their insured driver or not. Halting the underlying case also prevents the insured driver from hiring outside counsel and running up legal bills that could be the responsibility of the insurance company if they lose the declaratory judgment action.