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Civil Litigation -
Special Situations Insurance Coverage Declaratory Relief Action

Northern California Civil Litigation Information

As indicated above, if you are sued, your insurance company may have a duty to provide a defense for you if there is potential coverage under your insurance policy. The issue of whether or not there is actual coverage for liability imposed against you the lawsuit may not be determined until after the case has been tried and concluded. If you are found liable at trial, it is possible that even after that trial, you and your insurance company may disagree on whether or not your liability is covered by the insurance policy. Moreover, the plaintiff (who has just obtained a judgment against you) is now a "judgment creditor" who has the right, under Insurance Code §11580, to pursue any insurance coverage you may have which applies to the claim. If the coverage issue cannot be settled, then it is possible a second lawsuit will result between the insurance company on the one hand and the defendant/judgment debtor and plaintiff/judgment creditor on the other hand. This second lawsuit is called a "declaratory relief action," where each side seeks a declaration from the court that there is or is not coverage.

Usually, the declaratory relief action cannot proceed until the underlying lawsuit is concluded because it is possible information developed in the declaratory relief action could adversely impact the insured's liability in the underlying lawsuit. Sometimes an insurance company or policyholder will file an insurance coverage declaratory relief action while the underlying lawsuit is pending, but it is possible it will be "stayed" (not allowed to proceed) until the underlying action is concluded.

"Buss" Reimbursement Action

If your insurance company defends you subject to a reservation of rights, the insurer might also reserve the right to seek reimbursement of attorney's fees and costs incurred in the defense of non-potentially covered claims. This is sometimes referred to as a "Buss Reservation," after the California Supreme Court ruling in the case of Jerry Buss v. Superior Court (1997) 16 Cal.4th 35. In the Buss case, the Supreme Court reaffirmed the longstanding rule that an insurance company has a duty to defend the entire lawsuit (even claims which are not potentially covered), so long as there is at least one potentially covered claim. In the Buss case, Dr. Jerry Buss (an owner of the Los Angeles Kings hockey team and Los Angeles Lakers basketball team) was sued in a complex lawsuit involving various business transactions and contracts. The complaint against him included several causes of action for business and contract-related liabilities, none of which were potentially covered under his liability insurance policy. However, one of the causes of action against him was for defamation, which was potentially covered under his policy.

Therefore, his insurance company provided Dr. Buss with a defense to the entire action, which consisted almost entirely of claims which were not potentially covered by the policy. His insurance company denied coverage for liability resulting from the non-covered claims, and reserved the right to seek reimbursement of attorney's fees and costs incurred by the insurance company in defending the non-potentially covered claims. The Supreme Court ruled that the insurance company was entitled to reserve its rights on that basis. The Court further ruled, however, that the insurance company, in trying to prove its Buss reservation, must prove by "clear and convincing evidence" that the attorney's fees and costs which it seeks back must be incurred exclusively for the defense of the non-potentially covered claims.

Thus, if your insurance company has agreed to defend you under a reservation of rights, including the right to seek reimbursement under the Buss case, it is possible you may end up facing a second lawsuit with your insurance company concerning whether or not there is potential coverage for certain claims, and whether or not you have any responsibility to reimburse the insurance company for attorney's fees and costs incurred in the defense of non-potentially covered claims.

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