7.2 Declaratory Judgments

• Library: Insurance Law in Virginia (Virginia CLE) (2020 Ed.)

7.2 DECLARATORY JUDGMENTS

7.201 In General. A declaratory judgment is the end result of a declaratory judgment action. It constitutes the findings and conclusions of a trial court ³ as to the particular issue before it, much like a judgment or final order in a civil case before a court at law. A declaratory judgment can set out "binding adjudications of rights" based on the interpretation of, among other things, "instruments of writing, statutes, municipal ordinances and other governmental regulations." ⁴ This encompasses insurance contracts. However, a declaratory judgment is only proper when "cases of actual controversy" exist and there is "actual antagonistic assertion and denial of right." ⁵ It is axiomatic that the Virginia courts will not entertain an action for declaratory judgment merely to issue an advisory opinion on the outcome of a dispute that involves issues of fact. ⁶

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7.202 Purpose. Declaratory judgments are designed to

remove clouds from legal relations before they have become completed attacks or "disputes already ripened." If there is human probability that danger or jeopardy or prejudice impends from a certain quarter, a sufficient legal interest has been created to warrant a removal of the danger or threat. Naturally, some perspicacity is required to determine whether such danger is hypothetical or imaginary only or whether it is actual and material. ⁷

A classic example of an action resulting in a valuable declaratory judgment is where the declaratory judgment is able to "guide [the] parties in their future conduct in relation to each other, thereby relieving them from the risk of taking undirected action incident to their rights, which action, without direction, would jeopardize their interests." ⁸

A declaratory judgment neither creates nor changes substantive rights. ⁹ Likewise, it does not modify relationships or "alter the character of controversies which are the subject of judicial power." ¹⁰ Thus, the declaratory judgment should be understood "to supplement [and] not supersede ordinary causes of action." ¹¹ Preventive relief is its moving purpose. ¹²

7.203 Initiation. An action for declaratory judgment can be initiated either at the state level in a circuit court or at the federal level in a United States district court. At the state level, the Declaratory Judgment Act ¹³ (the Act) vests the circuit courts with subject matter jurisdiction. At the federal level, a similarly named act ¹⁴ creates the remedy of "declaration of

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rights and other legal relations," thereby allowing such controversies to be heard, assuming that subject matter and personal jurisdictional prerequisites can be satisfied.

7.204 Virginia State Court.

A. In General. The Act ¹⁵ provides the statutory basis for actions for declaratory judgment. While the Act is to be "liberally interpreted," ¹⁶ there are mandatory prerequisites to maintaining a viable action. Failure to satisfy all these prerequisites can deprive the circuit court of subject matter jurisdiction and render any action as impermissibly "advisory." ¹⁷

B. Jurisdiction. A circuit court has jurisdiction of an action for declaratory judgment if there is an "actual controversy" with "actual antagonistic assertion and denial of right." ¹⁸ An actual controversy and, therefore, the power to render a declaratory judgment do not exist just because the parties disagree. ¹⁹ To vest jurisdiction with the court, the "controversy must be justiciable." ²⁰ For a court to render an effective and legally binding declaratory judgment, all parties to the controversy must be before the court. ²¹ Otherwise, the declaratory judgment is not "sufficiently conclusive." ²² Unless the relief sought, if given, can be sufficiently conclusive, the controversy is not justiciable within the meaning of the Act. ²³

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If it appears that the circuit court would be called upon to render an advisory opinion, decide a moot question, or answer a speculative inquiry, jurisdiction is lacking under the Act. ²⁴ Also, if a decision on a disputed fact would resolve issues of a case instead of construing definite stated rights, statutes, or other relations that are commonly expressed in written instruments, the court should exercise its discretion and decline, on jurisdictional grounds, the request for declaratory relief. ²⁵

Liberty Mutual Insurance Co. v. Bishop ²⁶ is cited as the leading authority on the parameters of a court's discretion. In that case, there was a dispute as to the ownership of a vehicle at the time of an accident and which of three insurers owed a defense in a wrongful death claim. While one steadfastly denied any coverage obligations, the other two opted to settle and then pursued a declaratory judgment against the first company, seeking to recover from it the specific funds spent by them, by having the court interpret a disputed passage in the first insurer's policy.

The Supreme Court of Virginia held that it was error for the trial court to hear the case notwithstanding a writing in need of interpretation that appeared to create an "actual controversy." This was because the timing of the declaratory judgment action no longer had "preventive relief [as] the moving purpose." ²⁷ Once the second and third insurance companies elected to settle the wrongful death claim, there was no longer uncertainty with regard to the action to be taken with potential jeopardy to their interests. ²⁸ Thus, the opportunity for the court to guide the parties in their future conduct was lost, as the rights and claims asserted had already accrued and matured. ²⁹ Therefore,

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to avoid the result in Liberty Mutual, the declaratory judgment action must be filed before any underlying settlement, namely, while the underlying tort action is still pending. ³⁰

C. Venue. There are no unique venue provisions for actions involving declaratory relief in Virginia state courts. ³¹ Rather, by specific reference in the Act, the general venue provisions applicable to civil cases govern here as well. ³²

D. Pleadings. Although there should be well-defined rules governing the manner and form of pleadings in a declaratory judgment action, there are not. Instead, the case law reflects that the initiating pleadings have been labeled in many different ways without an expression by the Virginia Supreme Court favoring one over the others.

Because of the nature of the relief sought, declaratory judgment actions appear to fall within the equity jurisdiction or chancery side of the circuit courts. Effective January 1, 2006, pursuant to the revised Rules of the Supreme Court of Virginia, an equity action is no longer styled as a "bill of complaint," but rather simply as a "complaint." ³³ A response to the merits is called an "answer." ³⁴ Demurrers and special pleas are also recognized as appropriate responsive pleadings under the proper circumstances. ³⁵

The change in nomenclature embodied in the revised rules pertaining to pleadings echoes the court's ruling in Carr v. Union Church of

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Hopewell, ³⁶ where the court apparently abolished any distinction between law and equity in the context of declaratory judgment actions when it declared that "[i]f a case be brought properly under our declaratory judgment statute, it makes no difference on which side of the court it proceeds." ³⁷ Demurrers and special pleas are allowed, but motions to dismiss and motions for a bill of particulars also are recognized as pleadings.

Despite the consolidation of the old dual forms of action in the revised rules, the substantive differences between law and chancery mostly remain intact. Therefore, how the practitioner should proceed in a given situation could well turn on the type of relief sought as well as such things as the judge and local procedures of the venue involved. In a proceeding on the law side, counsel should not forget that the burdens of proof on issues and entitlement to jury trials are different from ordinary law cases. ³⁸

Necessary allegations to make when seeking declaratory relief include: (i) facts sufficient to frame the dispute; (ii) identification of the written instrument at issue; (iii) specific identification of the legal rights to be determined; ³⁹ (iv) identification of all parties with a real or potential interest in the litigation and the relief sought; (v) allegations as to venue; (vi) an allegation that one or more justifiable issues exist requiring declaratory relief as that term is understood in the Act and interpretative case law; (vii) the factual basis for the relief sought; and (viii) a prayer for the relief desired. ⁴⁰

E. Default. If one or more parties fail to answer or otherwise respond to the pleading initiating a declaratory judgment action, then such action is deemed an admission of all material facts. But the trial court still must consider the admitted facts and the provisions of the written instrument at issue and determine the rights and liabilities of each party. A default by one or more parties does not constitute an admission as to the legal conclusion advanced and sought by the initiating party. ⁴¹

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F. Necessary Parties. It is critical for any litigant involved in an action for declaratory judgment to determine that all the necessary parties to the dispute are before the court so that time, money, and a favorable decision will not be lost due to lack of subject matter jurisdiction. Erie Insurance Group v. Hughes ⁴² emphasizes the importance of this point. ⁴³

In Hughes, a two-car collision resulted in one death and multiple injuries. One of the cars involved was owned by Ruby Viar but was driven by Robert Kendrick at the time of the accident. Viar carried liability insurance with Erie Insurance Group with limits of $250,000/$500,000. Allstate Insurance Company provided uninsured motorist limits of $50,000/$100,000 to one of the passengers of the second car, Nettie Hughes. ⁴⁴ When a claim was made by Hughes, Erie denied...