How a Declaratory Judgment can Affect a Personal Injury Lawsuit

When a car accident leads to a personal injury lawsuit, the defendant’s insurance company often plays a critical role. The insurer often takes the lead in providing the defendant with legal advice, and in many cases the insurer will work to try and settle a claim without the need for extensive litigation. On the other hand, if the insurer tries to disclaim coverage, that can lead to additional litigation regarding the insurer’s obligations.

United Specialty Insurance Co. v. Cardona-Rodriguez

Georgia has a state law known as the Declaratory Judgment Act. This law essentially permits an insurance company to file a separate lawsuit that asks a judge to clarify its obligations with respect to an insured defendant in a personal injury case. The declaratory judgment therefore serves to resolve any uncertainty or ambiguity in the interpretation of an insurance policy.

There are situations where a declaratory judgment may not be appropriate. A recent decision form the Georgia Court of Appeals, United Specialty Insurance Co. v. Cardona-Rodriguez, helps to illustrate this point. This case arises from an unusual accident. A man named Rodriguez took his van to a local car wash for cleaning. While driving the vehicle, an employee of the car wash accidentally put the van in reverse and ran into Rodriguez, crushing his leg. As a result, doctors were forced to amputate Rodriguez’s leg above the knee.

Rodriguez later sent a letter to the car wash’s insurance company, United Specialty, demanding it pay out the limit of the business’ commercial insurance policy, which was $100,000. United Specialty replied the applicable policy limit was $25,000 and said it would only settle for that amount. Rodriguez rejected the offer and proceeded to file a personal injury lawsuit against the owner of the car wash.

To be clear, the car wash did have a $100,000 insurance policy. But United Specialty determined its liability was limited to the state-mandated minimum coverage of $25,000 because the car wash violated a “garage coverage endorsement” in the policy. This endorsement limited United’s liability in the event an accident was caused by an unlicensed driver.

In this case, the car wash employee who crushed Rodriguez’s foot did not have a driver’s license. United Specialty therefore filed a declaratory judgment action asking a judge to confirm it did not have to provide the full $100,000 in coverage. As it turned out, the trial court ruled against United Specialty, holding that under Georgia law, a person does not need a license to operate a vehicle on “private property,” including the garage area of a car wash.

But the Court of Appeals said the trial court should not have issued any type of declaratory judgment in this case. Indeed, the trial court “was without jurisdiction to render a declaratory judgment,” because this was not a case where an insurance company sought clarification of its rights or obligations. Rather, it was a case where the insurance company had denied coverage outright. An insurer cannot seek a declaratory judgment after it has already denied a claim.