Couple argue about contract terms with Insurance Representative

Understanding Declaratory Judgments

Arnett & Arnett, PC April 25, 2023

Contracts are a vital part of business. Without them, regulating business relationships would be extremely challenging. The insurance industry heavily relies on contracts to set the ground rules for policy coverage and liability. Disputes related to a breach of contract can quickly become a serious concern. In such cases, reaching out to legal support may be the best way to clarify matters. 

Resolving insurance-related disputes can be a complex task. At Arnett & Arnett, PC, we are committed to helping individuals and businesses deal with insurance policy disputes. Our attorneys are ready to offer our vast experience in handling policy-related issues for the Chandler, Arizona, community. We proudly serve residents throughout Arizona, including Phoenix, Tucson, and Flagstaff. Set up a consultation today. 

What Is a Declaratory Judgment?

A declaratory judgment is a legal tool that allows a court to make a statement or ruling on a legal issue or dispute without necessarily awarding damages or ordering specific actions. Essentially, it is a way for parties to obtain clarity on a legal issue to avoid potential future disputes or conflicts. 

In Arizona, declaratory judgments are governed by state law. They can be used in a variety of legal contexts, such as: 

  • Disputes over contract interpretation or validity 

  • Questions of insurance coverage or liability 

  • Challenges to the constitutionality of a law or regulation 

  • Property disputes, such as boundary lines or ownership rights  

In particular, our clients ask us about the validity of insurance coverage and liability. It may sometimes be necessary to get a declaratory judgment to clear the air regarding policy-related issues. 

A party typically files a petition or complaint with the court to obtain a declaratory judgment, asking for a declaration or ruling on the specific legal issue in question. The other parties involved in the dispute may then file a response, and the court may hold hearings or request additional evidence before making a final decision. 

Keep in mind that a declaratory judgment clears up potential disputes on wording or interpretation, specifically when there is a contract breach or the possibility of one. However, a declaratory judgment is not a ruling on damages or compensation. Parties seeking damages or compensation would need to file a separate lawsuit. A skilled insurance attorney can help you and your business navigate these legal issues. 

When to Request an Action for Declaratory Relief

My clients often wonder, “Why should I request declaratory relief?” While not legally necessary, a request for declaratory relief may be appropriate when there is a dispute or uncertainty regarding a legal right, duty, or obligation between parties. So, a declaration from a court could provide clarity or resolve the dispute between individuals and insurers. 

The following situations might qualify as an appropriate time to request action for declaratory relief: 

  • Contract disputes. When there is a disagreement over the interpretation or validity of a contract, a party may request a declaratory judgment to clarify the parties’ rights and obligations under the contract. 

  • Insurance coverage disputes. When there is a disagreement over whether an insurance policy covers a particular claim, a party may request a declaratory judgment to determine the scope of coverage. 

An action for declaratory relief can help the parties determine if there is, in fact, a contract breach, particularly regarding insurance coverage or liability. A declaratory judgment can help the parties reach an agreement, sidestepping the need for a lawsuit. 

Declaratory Judgment in Insurance Situations 

An example of a declaratory judgment in an insurance situation may occur when a policyholder and an insurer disagree about whether a particular claim is covered under the insurance policy. 

For instance, suppose a homeowner files a claim with their insurance company for damages to their home caused by a storm. The insurer denies the claim, arguing that the policy does not cover damage caused by flooding. However, the homeowner disputes this policy interpretation, arguing that the damage was caused by wind and rain, not flooding. 

In this scenario, the homeowner could file an action for declaratory relief, seeking a court’s determination on whether the insurance policy covers the damages caused by the storm. The court could review the policy language, the facts of the case, and other relevant information to decide on the coverage issue. The declaratory judgment would clarify the parties’ rights and obligations under the insurance policy. It could guide future actions related to the claim. 

If the court determines that the damages are covered under the policy, the insurer may be required to pay for the homeowner’s damages, as well as any other benefits or compensation owed under the policy. On the other hand, if the court determines that the damages are not covered under the policy, the homeowner may not be entitled to any benefits or compensation from the insurer for the storm damage. 

The Advantages of Seeking Declaratory Relief

Ultimately, there are three key advantages of seeking declaratory relief: 

  • Declaratory relief can clarify a legal issue or dispute, which can help the parties avoid future conflicts or disputes. A declaratory judgment can establish the parties’ legal rights and obligations and guide future actions or decisions. 

  • Seeking declaratory relief can be a more efficient way to resolve a legal dispute. It can avoid the need for lengthy and costly litigation. The parties can often resolve the issue without further litigation or appeals by obtaining a declaratory judgment. 

  • Seeking declaratory relief can provide a strategic advantage in a legal dispute, allowing a party to take the initiative and seek a favorable ruling. A party can gain leverage in negotiations or other legal proceedings by obtaining a declaratory judgment. 

With the help of your attorney, seeking a declaratory judgment helps give individuals and businesses greater certainty over how a judge might rule if the dispute results in a lawsuit. This outcome helps policyholders determine if pursuing further legal action is worthwhile. 

Get the Clarity You Need

At Arnett & Arnett, PC, our team strives to give our clients the clarity they need during frustrating situations. If you live in Phoenix or anywhere else in Arizona, set up a consultation with us today.