7.36 - 1. Generally

• Jurisdiction: New York

1. Generally

Assume that, on behalf of the insurance carrier, you have decided to pursue one of the foregoing proactive options that require a declaratory judgment action. What does that mean? The N.Y. Court of Appeals has held: “Where the issue is clear-cut, the insured or insurer should be entitled to obtain a prompt judicial determination, whether by summary judgment, declaratory judgment or otherwise . . . that the insurer is not obligated to furnish a defense.”¹⁹⁸⁴

Judicial intervention is critical when coverage is definitive and can be decided by the court as a matter of law. However, even when you have determined that a prompt judicial determination is needed, you need to assess whether a declaratory judgment action is appropriate or whether the court is likely to deem the action “premature.”¹⁹⁸⁵

The prematurity issue turns on the question of whether an actual controversy is involved. The Declaratory Judgments Act specifically provides that in federal courts a declaratory judgment action is allowed only when an “actual controversy” exists.¹⁹⁸⁶ Thus, for example, a declaratory judgment action seeking an interpretation of the policy that is advisory in nature (i.e., based on a hypothetical problem or contingent upon the happening of certain events) would be considered premature.¹⁹⁸⁷

In determining whether the “actual controversy” criterion applies in a particular state, you will first need to know whether the state has adopted the Uniform Declaratory Judgments Act of the National Conference of Commissioners on Uniform State Law¹⁹⁸⁸ and, if so, how that state has applied the act. Although the uniform act does not specifically require an “actual controversy,” various states have read the requirement into the language of the act, or the legislature has added a specific requirement similar to the one contained in the federal Declaratory Judgments Act.¹⁹⁸⁹

Having discovered that your state applies the “actual controversy” criterion, as New York does, you must determine whether your proposed action involves actual controversy. Actual controversy exists if you can answer “yes” to the following questions:

1. Is the conflict real and genuine?

2. Do the parties have adverse interests?

3. Will the action actually resolve the controversy (or is such resolution illusory)?

Even if actual controversy is involved, some courts hold that the declaratory judgment action is still premature because of the factual relationship between the action and the underlying...