Coverage Opinions vs. Declaratory Judgment Litigation: Choosing the Right Approach for Insurance Disputes

Making informed coverage decisions is essential for all types of insurers. Paying claims unnecessarily and wrongly denying claims can both lead to unnecessary costs; and, over time, multiple incorrect coverage decisions can dramatically impact insurers’ bottom lines.

So, how do you avoid costly mistakes? When it comes to avoiding incorrect coverage decisions for challenging claims, insurers have two main options available: coverage opinions and declaratory judgment litigation.

Choosing Between a Coverage Opinion and Declaratory Judgment Litigation

Each of these options can make more or less sense in different sets of circumstances. To decide which option to pursue, insurers will generally want to consider factors such as:

The Complexity of the Issue

The complexity of the coverage at hand is a key factor to consider—although this can potentially go both ways. In some cases, obtaining a coverage opinion to mitigate the risk of litigation will be the most cost-effective approach. On the other hand, if the issue is so complex that litigation seems inevitable, then it may make sense to take the issue directly to court.

The Value of the Claim

The value of the claim is a key factor as well. The greater an insurer’s exposure, the more likely it is that seeking a declaratory judgment will be the best approach. This is because claimants are more likely to sue when they have more to lose.

The Clarity of the Relevant Policy Language

If the relevant policy language is relatively clear, then engaging a law firm to investigate the claim and provide a coverage opinion may be all that is necessary to make a sound coverage decision and avoid litigation. Conversely, if the relevant policy language is not clear—or if it is not clear how the relevant policy language applies to the facts at hand—then declaratory judgment litigation may be necessary.

The Likelihood that the Claimant Will Pursue Legal Action

While obtaining coverage opinions can help insurers make sound decisions, doing so does not guarantee that claimants will accept the decisions they make. If a claimant appears likely to pursue litigation in the event of a denial (i.e., if the value of the claim is substantial and the claimant has engaged legal counsel), then seeking a declaratory judgment may be the most cost-effective solution in this scenario as well.

The Potential for Similar Claims in the Future

The final factor we’ll discuss is the potential for similar claims in the future. If a mass casualty event or a new trend within the plaintiffs’ bar suggests that additional claims will be forthcoming, then securing a declaratory judgment could help avoid additional litigation going forward.

Speak with an Insurance Defense Lawyer at Rendigs

Are you wondering whether your company should seek a coverage opinion or pursue declaratory judgment litigation? If so, we invite you to get in touch. To schedule a call with an experienced insurance defense lawyer at Rendigs, please call 513-381-9200 or contact us online today.