BEST PRACTICE: WHEN TO STAY IN AN INSURANCE COVERAGE ACTION
I recently came across this helpful article by fellow insurance attorney for policyholders, Erica Villanueva at the fine firm of Farella Braun + Martel LLP here in San Francisco. Her summary of recent appellate court decisions includes pointers for attorneys in seeking a Motion to Stay an insurance coverage action:
“When a liability insurer wishes to avoid all coverage obligations with respect to a claim against its insured, it may seek an adjudication that it has no duty to defend or indemnify the policyholder. If the insurer files for such declaratory relief while the underlying litigation is still pending, California insureds will frequently move to stay the coverage action, pursuant to Montrose Chemical Corp. v. Superior Court, 6 Cal. 4th 287 (1993) (“Montrose I”). The purpose of such a Montrose stay is to avoid the risk of prejudice to the insured in the underlying action, if it is simultaneously forced to litigate an insurance coverage dispute.
In these situations, the insured faces a dilemma: Should it immediately move to stay the coverage litigation, or wait until it has filed an answer and cross-complaint? The more principled position might be to minimize any public filings which could force the insured to take positions on factual matters at issue in the underlying litigation. However, a recent California Court of Appeal decision, Great American Insurance Company v. Superior Court, 178 Cal. App. 4th 221 (2009), suggests that the better practice may be to answer and cross-complain before moving to stay.