|
|
Publications
California Court Clarifies Basis for a Stay of Declaratory Judgment Action Regarding Duty to Defend
Insurance Law Update
California Court of Appeal, Second District
In Great American Ins. Co. v. Superior Court, 178 Cal.App.4th 221 (October 9, 2009), the California Court of Appeal, Second District, considered the basis upon which a court may grant a stay of an insurer’s declaratory relief action when an insurer providing a defense to its insured believes there is no longer a potential for coverage and seeks a judicial declaration that a duty to defend is no longer owed.
Great American paid the aggregate limits of its policy to settle the underlying action and thereafter sought a declaratory judgment that it no longer had a duty to defend the insured. Great American had already paid $1.8 million in defense costs on behalf of the insured even though the first phase of trial had not yet commenced in the pending underlying litigation. The insureds responded by filing a demurrer and a motion to stay the coverage litigation, and the trial court concluded that a stay was appropriate.
Great American petitioned the Court of Appeal for a writ of mandate directing the trial court to vacate its stay order, and the court granted the petition. The court noted that “in a [declaratory action] in which there is no factual overlap with the issues to be resolved in the underlying case, the trial court must exercise its discretion on a motion for stay, balancing the insured’s interest in not fighting a two-front war against the insurer’s interest in not being required to continue paying defense costs which it may not owe and likely will not be able to recoup.” The court then found that, in the case before it, the insureds failed to establish that a stay was necessary on the basis that the coverage action implicated factual issues that were at issue in the ongoing underlying litigation. Therefore, the trial court erred in granting the motion on that ground, and, in doing so, the court did not balance the possible prejudice to the parties by the grant or denial of the motion to stay. As such, the court directed the trial court to vacate the stay order and to reconsider the motion to stay based “solely on balancing the prejudice to the insured if they are required to litigate both cases at once against the prejudice that Great American will sustain if it is forced to continue to provide a defense until the underlying action is resolved.”
|
Related People
Related Offices
Related Practices
|