The plaintiffs, Donegal Mutual Insurance Company and Stephen Pearcy filed a declaratory judgment action against Erie Insurance Exchange to determine if Erie had a duty to defend and indemnify its insured, Dillion Nearwood in an underlying personal injury action in which the plaintiffs claimed that Nearwood’s negligence caused Pearcy’s injuries.
In response, Erie argued that the plaintiffs were not parties to the insurance contract between it and Nearwood and, as such, they lacked standing to bring the declaratory action. The plaintiffs countered that since they had a direct and substantial interest in whether Nearwood had coverage, they did not need to be a named party to the insurance contract to institute the action.
The court first noted that a declaratory judgment action was the appropriate vehicle to determine a party’s obligations under an insurance contract, including an insurance company’s duty to defend and indemnify a party under its policy. However, this was not the issue in the instant case. The court determined that the plaintiffs’ position was in contravention to the well-established law. Thus, the plaintiffs’ complaint was dismissed for lack of standing.
Thanks to Colleen Hayes for her contribution to this post.