When Insured Withdraws Claim No Need to Sue for Declaratory Relief

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As a young lawyer one of the first things I learned was never argue with a judge whose tentative ruling is to grant your motion. Insurers often seek, when there is a dispute of insurance coverage, declaratory relief from the court about its duty to defend or indemnify the insured. However, when the insured advises there is no claim, it is a waste of the time of counsel, the insured and the courts to bring a declaratory relief action.

The axiom to never argue over a win was explained by the USDC for the Eastern District of Virginia, in Hanover Insurance Company, et al. v. C. David Venture Management, LLC, et al., Civil Action No. 1:21-cv-790 (RDA/JFA), United States District Court, E.D. Virginia, Alexandria Division (August 30, 2022). Hanover sought a ruling it owed neither defense nor indemnity to the defendants. The defendants, David Venture Management, LLC and Venture Street, LLC’s (“Defendants”) moved to dismiss The Hanover American Insurance Company’s (“Plaintiffs” or “Hanover”) suit.

BACKGROUND

The lawsuit for Declaratory Judgment implicates Hanover’s potential duties to defend or indemnify Defendants in a putative class action brought in the U.S. District Court for the District of Colorado.

Beginning on December 9, 2017, Hanover issued the first of several Commercial General Liability (“CGL”) policies to CDVM. Hanover also issued Commercial Follow Form Excess and Umbrella Policies (“Excess/Umbrella Policy”) for the same effective dates. Defendant Venture Street was added as an additional named insured on the CGL and Excess/Umbrella Policy effective May 29, 2019.

Plaintiffs in the putative class action, styled In Re HomeAdvisor, Inc. Litigation, Civil Action No. 16-CV01849 (“the HomeAdvisor lawsuit”), filed suit on July 16, 2019. The plaintiffs in the HomeAdvisor lawsuit have amended their complaint several times and continue to assert claims against Defendants CDVM and Venture Street. After Defendants were named in the HomeAdvisor lawsuit, they provided notice of the litigation to Plaintiff Hanover. On November 12, 2019, Hanover responded to the notice by denying Defendants insurance coverage for the HomeAdvisor Lawsuit. Defendants sought reconsideration from Hanover on January 29, 2020, and again on April 23, 2021, but Hanover reaffirmed its coverage denial.

Plaintiffs filed suit on July 6, 2021, seeking a declaration that they owe no duty to defend or indemnify Defendants in the HomeAdvisor Lawsuit. Plaintiffs maintain that “[t]here is no coverage available for the claims asserted against [Defendants] CDVM and Venture Street in the HomeAdvisor Lawsuit” for multiple reasons. Specifically, Plaintiffs alleged that insurance coverage is unavailable because

“[t]he claims do not allege damages because of ‘bodily injury’ or ‘property damage’ caused by an ‘occurrence’ within the meaning of the CGL or Excess/Umbrella Policies”;
“[t]he claims do not allege damages because of ‘personal and advertising injury’ within the meaning of the CGL Policies”;
“[t]he claims do not allege damages because of ‘advertising injury’ or ‘personal injury’ within the meaning of the Excess/Umbrella Policies”;
the alleged acts were not committed, and the alleged injuries did not occur, during the relevant policy periods; and
several exclusions bar coverage, including exclusions for “Expected or Intended Injury Knowing Violation of the Rights of Another; Infringement of Copyright, Patent, Trademark or Trade Secret; Insureds In Media And Internet Type Businesses; and Personal and Advertising Injury.”

Defendants, in response, notified Plaintiffs that they were no longer seeking coverage from Plaintiffs for the HomeAdvisor lawsuit on July 19, 2021. On August 16, 2021, Defendants affirmed that they had withdrawn their request for coverage from Hanover. Through counsel, Defendants communicated the details of their withdrawal to Plaintiffs

RIPENESS AND DECLARATORY RELIEF

The Declaratory Judgment Act authorizes federal courts to review claims for declaratory relief. The animating purpose of a declaratory judgment remedy is to guide parties in their future conduct in relation to each other, thereby relieving them from the risk of taking undirected action incident to their rights.

The doctrine of standing is grounded in the Constitution’s limits on the Article III judicial power. Ripeness, another justiciability doctrine, determines when a case or controversy is fit for federal judicial review.

A claim is not ripe for adjudication if it rests upon contingent future events that may not occur as anticipated, or indeed may not occur at all. A declaratory claim is only ripe for judicial resolution when the facts alleged, under all the circumstances, show that there is a substantial controversy between parties having adverse legal interests of sufficient immediacy and reality to warrant the issuance of a declaratory judgment.

PLAINTIFFS’ CLAIM FOR DECLARATORY RELIEF

Plaintiffs’ Complaint seeks a declaration that Hanover owes no duty to defend or indemnify Defendants in the HomeAdvisor lawsuit. However, Defendants notified Plaintiffs that they were withdrawing their claim for insurance coverage related to the HomeAdvisor lawsuit.

The facts of this case do not call for declaratory relief on either the duty to defend or duty to indemnify questions. Critically, Defendants no longer seek coverage under the relevant insurance policies for defending against the HomeAdvisor lawsuit. As a result, there is not a live question regarding Plaintiffs’ duty to defend Defendants in that litigation.

If Plaintiffs do not deny Defendants coverage in defending against a potential future amended complaint in the HomeAdvisor lawsuit Defendants-or if Defendants never again seek such coverage-then a decision from this Court concerning Plaintiffs’ duty to defend will have no effect. Were the Court to interpret the relevant CGL and Excess/Umbrella policies’ language regarding a duty to defend at this juncture, such a ruling would be premature and therefore tantamount to an advisory opinion in contravention of Article III.

Similarly, Plaintiffs’ duty to indemnify Defendants under the relevant CGL policies is not ripe for resolution. Whether Defendants should be indemnified by Plaintiffs against liability for injuries “would depend in the first place upon whether [Defendants] are found to be liable for the” conduct alleged in the HomeAdvisor lawsuit, but “[that question cannot be answered at this time.” Thus, this Court cannot at this time exercise its prerogative under 28 U.S.C. § 2201 to issue a declaratory judgment on the indemnity question.

Defendants’ Motion to Dismiss was granted. Plaintiffs’ Complaint was dismissed without prejudice.

In this case Hanover denied defense and indemnity to the defendants who, after some discussion, withdrew their claims. With no claim pending – only a potential for a future claim – Hanover refused to accept the fact that it had won the argument about the availability of coverage for defense or indemnity and filed a complaint for declaratory relief seeking the order of the court that the decision of the defendants not to seek defense or indemnity was correct and preventing them from changing their mind.

(c) 2022 Barry Zalma & ClaimSchool, Inc.

Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at http://www.zalma.com and zalma@zalma.com.

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