Insurance Law

Court Stays Declaratory Relief Action Pending Resolution of the Underlying Action Based on a Finding that Application of Professional Services Exclusion Could Materially Impact the Underlying Action

In Golden Eagle, [subscribers can access an enhanced version of this opinion: | Lexis Advance], the Northern District of California granted an insured’s motion to stay proceedings in a declaratory relief action pending the resolution of an underlying action because it found that the resolution of the professional services exclusion issue on the facts before it could impact the insured’s defense of the underlying action.

Golden Eagle arose from an underlying action brought against the insured alleging that the insured failed to perform its services in a professional and workmanlike manner.  The insured tendered the suit to its primary and excess CGL carriers, and those carriers filed a declaratory relief action seeking an adjudication that the professional services exclusion in their policies barred coverage.  The insured moved to stay that action pending the outcome of the underlying matter, and the court granted that motion.

The court found that the matter should be stayed for two primary reasons.  First, the court held that a ruling on the carrier’s coverage defense could prejudice the insured because resolution of the professional services issue “could very well impact the standard of care applicable to [the claimant’s] negligence claim in the Underlying Action and whether [the insured’s] conduct fell below that standard.”  Second, according to the court, the fact that the relevant arguments solely involved issues of state law weighed in favor of staying the declaratory relief action.

Golden Eagle Ins. Corp. v. Drain Doctor Inc., 2015 U.S. Dist. LEXIS 33015 (N.D. Cal. Mar. 17, 2015).

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