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Declaratory Judgment Premature Where Duty to Indemnify Depends on Issues to Be Determined in Underlying Lawsuit Against The Insured

On August 27, 2019, Judge Pauley of the SDNY issued a decision in Gemini Ins. Co. v. Titan Construction Servs., Case No. 17-cv-8963, dismissing a declaratory judgment claim as premature because the lability insurer’s duty to indemnify would depend on facts to be developed in the underlying lawsuit against the insured.  The court explained:

It has long been well-established that a liability insurer may bring an action for a declaratory judgment against the parties in an underlying lawsuit involving its insured without waiting for the underlying action to proceed to judgment. However, when the duty to indemnify necessarily depends on the resolution of one or more issues to be determined in the action, a declaratory judgment on that duty is premature. What caused Mejia’s accident and who was responsible have not yet been established in the State Action. And without any such finding, this Court cannot declare whether Gemini will ultimately be obligated to indemnify Titan or Hudson View. Accordingly, this Court dismisses all parties’ claims for declaratory judgments on the duty to indemnify as premature.

The same principle applies to the duty to advance defense costs. In a case previously discussed on this blog (in which HNRK Partner Bradley J. Nash represented the insureds), Justice Sherwood of the New York County Commercial Division granted a preliminary injunction, directing three excess D&O insurers to advance defense costs for a criminal matter, and stayed discovery pending the resolution of the underlying prosecution.  Justice Sherwood held that a “declaratory judgment action cannot be used to conduct discovery regarding the very facts at issue in the EDNY Indictment and the SEC Complaint.”

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