Triggering the 4-Year Statute of Limitations For Declaratory Judgment Action

The Pennsylvania Superior Court has defined, for the first time, when the four-year statute of limitations for filing an insurance coverage declaratory judgment action begins to run.  In Selective Way Insurance v. Hospitality Group Services the Court held that, “the statute of limitations for the filing of a declaratory judgment action brought by an insurance company regarding its duty to defend and indemnify begins to run when a cause of action for a declaratory judgment arises.  This requires a determination by the trial court of when the insurance company had sufficient factual basis to support its contentions that it has no duty to defend and/or indemnify the insured.”  The Westmoreland County Court of Common Pleas had ruled that the four-year statute begins to run when the insurance company receives the underlying civil complaint.  The Superior Court reversed, holding that the statute of limitations on an insurance company's coverage lawsuit begins to run when the insurer receives the factual basis to support its claim that it does not have a duty to defend and indemnify.

  Selective had argued that a controversy did not arise until it denied coverage, and that was the triggering date. Alternatively, Selective argued that the triggering date was when it became aware, after a deposition in the underlying case, that the claims in the underlying action were not covered. 

This decision settles an area that was murky until today.  Although it does not provide a bright line, the decision provides clearer guidance for insurance carriers.  The determination, however, will be fact specific, and each case will have to be decided on its own merits.  The trial court, left to determine a statute of limitations challenge, will have to look at all of the relevant facts to find when the insurer became aware that it did not have a duty to defend and indemnify. 

This decision does not change the long standing Pennsylvania law, “that an insurance company is not required to file a declaratory judgment action prior to withdrawing its defense or refusing to defend or indemnify an insured in a third party’s action.”  Most carriers will continue to file declaratory judgment actions within four years after the original complaint is filed, but now they will not be precluded from filing if discovery developed later in the underlying case uncovers evidence that supports a disclaimer of coverage.  

The information herein is provided for consumer educational purposes only.  The statements contained herein are general statements of law, as of the date stated, and there may be exceptions that are not set forth below, or changes due to later legislative developments and/or newer case law.  The Nicolson Law Group does not suggest that any provision contained herein will or must apply to any specific issue or case.  For legal information and advice for any particular matter, you are encouraged to consult advice from one of Nicolson Group’s licensed attorneys.