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Declaratory Judgments

Actions for declaratory relief are typically filed after an underlying lawsuit against an insured has been concluded to dispute whether the insurance policy covers the claims against the insured. However, an insurer need not wait until a judgment has been entered against the insured before filing a declaratory judgment action to determine coverage for the claims in the lawsuit. Rather, in some instances, an insurer may file an action for declaratory relief to determine its obligations to its insured in an underlying lawsuit before any judgment has been entered against the insured in that underlying case.

The Federal Declaratory Judgment Act provides:

[i]n a case of actual controversy within its jurisdiction, except with respect to Federal taxes other than actions brought under section 7428 of the Internal Revenue Code of 1986, a proceeding under section 505 or 1146 of title 11, or in any civil action involving an antidumping or countervailing duty proceeding regarding a class or kind of merchandise of a free trade area country (as defined in section 516A(f)(10) of the Tariff Act of 1930), as determined by the administering authority, any court of the United States, upon the filing of an appropriate pleading, may declare the rights and other legal relations of any interested party seeking such declaration, whether or not further relief is or could be sought. Any such declaration shall have the force and effect of a final judgment or decree and shall be reviewable as such.

28 U.S.C. § 2001(a).

Similarly, Arizona’s declaratory judgment act provides:

[c]ourts of record within their respective jurisdictions shall have power to declare rights, status, and other legal relations whether or not further relief is or could be claimed. No action or proceeding shall be open to objection on the ground that a declaratory judgment or decree is prayed for. The declaration may be either affirmative or negative in form and effect; and such declarations shall have the force and effect of a final judgment or decree.

Ariz. Rev. Stat. Ann. § 12-1831.

Such anticipatory declaratory judgments are not always proper. The decision to permit a declaratory judgment action to proceed before a judgment has been rendered in the underlying lawsuit is within the discretion of the trial court. In some cases, it would be premature and prejudicial to force an insured to litigate coverage while simultaneously litigating the same issues in the original case filed against the customer where resolution of the coverage issues is not “independent of and separable from” the issues presented in the underlying case. Merritt-Chapman & Scott Corp. v. Frazier, 92 Ariz. 136, 139, 375 P.2d 18, 21 (1962) (holding that declaratory judgment action is improper where issues are pending in another action, or resolution of the dispute depends upon an event which may never happen).