Parties to insurance coverage disputes often file declaratory judgment actions in an attempt to resolve disagreements over the duty to defend and the duty to indemnify. The Declaratory Judgment Act permits federal courts to declare the rights and obligations of parties prior to the time that further relief, such as a coercive remedy, can be sought. But the duty to defend and the duty to indemnify are distinct in ways that may impact whether a federal district court has jurisdiction to resolve a dispute under the Declaratory Judgment Act. For example, the duty to defend is triggered by the mere filing of a lawsuit against the insured whereas the duty to indemnify is not triggered until the insured is held liable to a third party for loss.
In some cases, a dispute over the duty to defend may be justiciable but a dispute over the duty to indemnify involving the same facts may not be. The United States Court of Appeals for the Second Circuit recently addressed this issue and clarified the applicable standards in Admiral Insurance Co. v. Niagara Transformer Corporation, No. 21-2733, 2023 WL 115364 (2d Circuit Jan. 6, 2023).