Superior Court Defines Statute of Limitations for Declaratory Judgment on Insurer’s Duty to Defend and Indemnify

The statute of limitations for 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, an en banc Superior Court panel held in Selective Way Ins. Co. v. Hospitality Group Services, Inc., __ A.3d __ (No. 1430 WDA 2013, filed July 7, 2015). On February 19, 2006, Sean Nemcheck, age 17, died in a single-vehicle accident after working his shift at a hotel owned by Hospitality Group, which was insured by Selective. On August 1, 2007, Terri Nemcheck commenced a civil action against Hospitality Group alleging negligent supervision/management since the decedent had allegedly consumed alcohol at work. In a reservation of rights letter dated July 31, 2007, Selective advised Hospitality Group that it was unsure whether it had a duty to defend or indemnify Hospitality Group in the Nemcheck Action. On June 6, 2012, Selective filed a complaint seeking a declaration that it had no duty to defend or indemnify. Motions for summary judgment followed. The trial court granted Hospitality Group’s and Nemcheck’s motions, holding that the four-year statute of limitations for Selective’s declaratory judgment action began to run when Selective became aware of the allegations in Nemcheck’s complaint. Selective’s complaint, filed nearly five years after it received Nemcheck’s complaint, was untimely. Selective appealed.

The Superior Court first considered whether the appeal was moot as a consequence of Selective’s settlement with Nemcheck prior to oral argument. Writing for the majority, Judge Donohue concluded that if the Court declined to proceed, Selective could suffer a detriment in a separate bad faith action brought by Hospitality Group since collateral estoppel would apply to the trial court’s decision that Selective’s declaratory judgment action was untimely. On the merits, the Court rejected Selective’s argument that its denial of coverage started the limitations period running for its declaratory judgment action. The majority held that “[u]ntil an insurance company has a sufficient factual basis to decline to defend (and thus, decline to indemnify) its insured in a third party’s action, there is no justiciable controversy for the trial court to decide, and no cause of action for declaratory judgment.” The Court reversed the trial court’s order granting summary judgment and remanded for the court to determine when Selective had a “sufficient factual basis.”

President Judge Emeritus Ford Elliott filed a dissenting opinion joined by Judges Panella and Shogan (with Judge Mundy concurring in the result). Judge Ford Elliott would decide that the statute of limitations for a declaratory judgment action begins to run when the insurer is on notice of a coverage dispute, which in this case was no later than August 1, 2007, when the Nemchecks filed the underlying lawsuit. Judge Mundy filed a separate dissenting opinion observing that the appeal was moot and opining that any detriment suffered by Selective was the result of its own election to settle the Nemcheck Action.

By | 2015-07-27T14:40:49+00:00 August 3rd, 2015|Categories: Civil Litigation, Insurance|Tags: , , , , , , |Comments Off on Superior Court Defines Statute of Limitations for Declaratory Judgment on Insurer’s Duty to Defend and Indemnify

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