When an individual is injured in a vehicle accident, they typically pursue compensation from the at-fault driver through a personal injury claim.

If the at-fault driver has liability insurance, the insurance company is generally obligated to defend the driver and cover damages within the policy limits. However, there is an important legal mechanism that insurers sometimes use to avoid this obligation: the declaratory judgment.

What Is a Declaratory Judgment?

A declaratory judgment is a type of lawsuit in which one party—often an insurance company—asks the court to determine the parties’ legal rights and obligations before any enforcement action is taken.

In the insurance context, this typically involves the insurer asking a court to decide whether a policy provides coverage for a particular claim.

How Do Insurance Companies Use Declaratory Judgments?

Insurance companies file declaratory judgment actions to avoid defending or indemnifying their insured if they believe the policy does not cover a specific incident.

This legal tool allows the insurer to obtain a court ruling on coverage without automatically exposing themselves to a bad faith claim from their insured.

If the court rules that the insurance policy does not apply, the insurer is not required to:

• Provide a legal defense for the insured, or

• Pay any judgment or settlement arising from the underlying injury claim.

When Can an Insurance Company File a Declaratory Judgment Action in Georgia?

The timing of a declaratory judgment action is critical:

• In Georgia state courts, an insurance company must file a declaratory judgment action before denying the underlying claim. Once the insurer denies coverage, Georgia courts generally consider the issue moot because there is no longer a “justiciable controversy.”

• In federal courts, the rules are different. Federal courts apply broader jurisdictional standards under the Declaratory Judgment Act. As a result, insurers may file declaratory judgment actions even after they have denied a claim, so long as there remains a legal controversy to resolve.

What Happens to the Underlying Personal Injury Lawsuit?

It’s common for a personal injury lawsuit to be underway when the insurance company files a declaratory judgment action. In such cases, the insurer may:

• File the declaratory judgment in the same court handling the injury claim, or

• Ask to consolidate the cases or “stay” the underlying lawsuit until the coverage issue is resolved.

Why do insurers do this?

• To avoid being forced to fund legal defense costs while the coverage dispute is undecided.

• To prevent the insured from hiring private counsel, incurring significant legal fees that the insurer might later be responsible for reimbursing.

By resolving the coverage issue first, the court can determine whether the insurance company must provide a defense or pay damages.

Can the Injured Party Participate in the Declaratory Judgment Case?

Yes. A person bringing a claim against the insured driver may be allowed to participate in the declaratory judgment proceeding, especially if their right to recover compensation could be affected by the court’s ruling on coverage.

How Can an Attorney Help with a Declaratory Judgment Action?

If you are involved in an accident and your claim is affected by a declaratory judgment action, having legal counsel is crucial. An experienced attorney can:

• Represent your interests in the declaratory judgment case,

• Help protect your rights to compensation under the insurance policy,

• Navigate the procedural and legal complexities involved, and

• Ensure you are not unfairly excluded from the outcome of a coverage dispute.

In many cases, the same attorney handling your injury claim can assist you in the related declaratory judgment matter.