Policyholders and insurers alike use declaratory judgment actions to settle disputes over insurance coverage. Declaratory judgment actions are a powerful tool that can clarify not only an insurer’s current coverage obligations to the insured but also whether an insurer may have to indemnify an insured for a future judgment. The Federal Declaratory Judgment Act provides:
(a) In a case of actual controversy within its jurisdiction, except with respect to Federal taxes . . . any court of the United States, upon the filing of an appropriate pleading, may declare the rights and other legal relations of any interested party seeking such declaration, whether or not further relief is or could be sought. Any such declaration shall have the force and effect of a final judgment or decree and shall be reviewable as such.
Likewise, most states have their own similar statutes. Many states have adopted some version of the Uniform Declaratory Judgments Act, which provides, in part:
Courts of record within their respective jurisdictions shall have power to declare rights, status, and other legal relations whether or not further relief is or could be claimed. No action or proceeding shall be open to objection on the ground that a declaratory judgment or decree is prayed for. The declaration may be either affirmative or negative in form and effect; and such declarations shall have the force and effect of a final judgment or decree.