An insured could seek a declaratory judgment of coverage under a property insurance policy just four days after filing a claim, even where the amount of damages was undetermined and the insurer had yet to issue a coverage determination, a Texas federal district court recently ruled.
A hailstorm allegedly caused extensive damage to 15 properties owned by a real estate company (Triyar) in the Phoenix, Arizona, area. Triyar submitted a claim for the damages to Lexington Insurance Company, its property insurer, on October 1, 2012. Just four days later, on October 5, 2012, Triyar sued Lexington in Texas federal court, requesting declarations that (i) Lexington owed coverage for the property losses under its policy, and (ii) if Lexington did not pay the claims promptly, it would be in breach of the terms of its policy and its duty of good faith and fair dealing.
Lexington sought to dismiss the lawsuit because it was still investigating Triyar's claims, Triyar had yet to submit a proof of loss, and Lexington had yet to deny Triyar's claims. Thus, according to Lexington, the lawsuit was merely speculative and not ripe or justiciable.
But the court disagreed as to a declaration of Lexington's obligation to provide coverage.
[I]t is true that the parties have not yet determined the amount of Triyar's damages . . . But Triyar does not ask the Court to enter a ruling based on some speculative future event. The factual basis for Triyar's claim – the October 2010 hailstorm – is a past event that is neither abstract nor hypothetical . . . Declaratory judgment actions are often used to determine whether insurance coverage exists for damage caused by a past event, even in cases in which the plaintiff's damages have not yet been determined.
The court also considered the hardship to Triyar of withholding a declaratory judgment. A limitations defense could arise if the declaratory action was dismissed and a future suit was required, the court noted, and "that possibility also favors a finding of ripeness." Thus, "Triyar's action for a declaration to establish coverage under the policy is ripe for decision regardless of whether a breach of that policy has occurred," the court concluded.
To read the decision in Triyar Cos. v. Lexington Insurance Co.,click here.
Why it matters: Some policyholders may believe that, once they have submitted a claim to their insurer, their hands are tied until the insurer issues a determination of coverage. In many cases this may take weeks or months – arguably much longer than it should. This case illustrates that policyholders may be able to submit a claim and then proceed directly to adjudication. Although many policyholders would not be inclined to litigate their coverage claims before their insurer issues a coverage determination, this option may expedite the inevitable where the insurer has indicated informally that it will deny the claim when presented. It also may be an important strategic consideration where more than one jurisdiction's substantive insurance law may apply to a claim. In such cases, winning the race to the courthouse may be a critical factor in determining the applicable law.