In 2007, a seventeen year old hotel worker was killed in a car accident after drinking on the job. A negligence based wrongful death action was thereafter commenced against the hotel operator. In 2012, on the eve of trial, Selective Way Insurance Company (“Selective”) commenced a declaratory judgment action asserting that no coverage was owed for various reasons. The insured (Hospitality Group Services (“HGS”)) answered and asserted that the declaratory judgment action was untimely as more than four years had passed since suit was filed – contract actions in PA are subject to a four year statute of limitations. Selective claimed that the action was timely as a declaratory judgment action did not need to be commenced until the carrier denied defense or indemnity coverage. The trial court rejected Selective’s position and held that “the statute of limitations for an insurance carrier to file a declaratory judgment action regarding its duty to defend and indemnify its insured begins to run at the time the insurance company receives the civil complaint in an action against its insured.” The case went up on appeal and the Superior Court of Pennsylvania has now issued its decision.
The Superior Court reversed the trial court and held that the time to commence a declaratory judgment action begins when “the insurance company had a sufficient factual basis to support its contentions that it has no duty to defend and/or indemnify the insured.” The Superior Court noted that just when that basis existed depended on the specific facts of the case and could range from when a complaint was received or when “the case develops and the claim is winnowed down to a recovery.”
As we told the press, this decision, the first of its kind in Pennsylvania, is obviously significant. What it means is that insurers need to be proactive in asserting, in litigation, their coverage position or run the risk of waiving that position – or even worse, walking themselves into a a bad faith claim based upon the commencement of untimely and thus impermissible litigation.
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