A new published case from the Fourth Circuit may make it harder to convince federal courts to keep and resolve insurance disputes.  At the least, it sows confusion by conflicting with established case law.

Specifically, the new case discusses Article III jurisdiction over declaratory relief actions that address an insurer’s duty to indemnify tort claims or judgments. The case—Trustgard Ins. Co. v. Collins, 942 F.3d 195 (4th Cir. 2019).

While Trustgard relied on other grounds for its result, the panel’s majority raised the Article III issue sua sponte—not in response to any oral or written argument by the litigants. Thus, as noted by the concurring judge (who did not join in the Article III portion of the opinion), the panel had “the benefit of no briefing or argument on the [Article III] issue. And this question, it seems to me, is far from settled.” Trustgard at 204.

Trust us: while federal court may not be the spot for your tort cases, it can offer a superior venue for coverage disputes. Judges there have more experience with insurance law and more clerks to help them research what they do not know. So you can assess potential coverage outcomes more predictably. Plus the federal magistrates provide free, skilled mediation help.

Briefing the topic could have avoided the resulting inconsistent authority here; the Trustgard majority’s musings on federal jurisdiction over declaratory judgment coverage suits directly conflict with existing Supreme Court and Fourth Circuit precedents. Even setting aside the binding Supreme Court authority, three-judge Fourth Circuit panels cannot “overrule the decision of another panel; only an en banc court may overrule a prior panel decision.” Jones v. Angelone, 94 F.3d 900, 904 (4th Cir. 1996).

Without mentioning the conflicting, binding authority, the majority opinion dives right into the jurisdictional issue. “[W]e first note our uncertainty about whether we have Article III jurisdiction at all.” Trustgard at 199.

Standing “requires the petitioner to allege a concrete injury that is actual or imminent, not conjectural or hypothetical.” Trustgard at 199. Such doctrines “guard against our rendering of an opinion advising what the law would be upon a hypothetical state of facts.” Trustgard at 200. “That courts may not issue advisory opinions is one of the most longstanding and well-settled jurisdictional rules.” Trustgard at 200.

The majority’s big assertion: any opinion on whether a judgment is covered is inherently advisory as long as a defense verdict remains possible. “If [a plaintiff] does not win a state-court judgment against [the] insured, then a decision from this Court concerning [the insurer’s] obligation to guarantee such a judgment will have no effect.” Trustgard at 200. “Thus, before any determination of liability, we risk issuing an advisory opinion.” Trustgard at 200.

“[S]uits about the duty to indemnify—unlike the duty-to-defend suits—would ordinarily be advisory when the insured’s liability remains undetermined.” Trustgard at 200.

That perhaps sounds plausible, except that the Fourth Circuit has held in at least two published opinions that federal jurisdiction over declaratory relief coverage claims does not require a tort judgment in the underlying case.

Additionally, the Supreme Court has directly addressed Article III jurisdiction over insurance coverage declaratory relief claims, and Trustgard conflicts with that binding case. In Maryland Casualty Co. v. Pacific Coal & Oil Co., 312 U.S. 270, 273 (1941), the Court found a tort victim—not an insured or some other party to the insurance contract—had Article III standing to participate in a coverage declaratory relief claim even before any tort judgment.

“Basically, the question in each case is whether the facts and circumstances show that there is a substantial controversy between parties having adverse legal interests, of sufficient immediacy and reality to warrant the issuance of a declaratory judgment.” Pacific Coal at 273.

When the Fourth Circuit also addressed the issue, reaching a different result from the Trustgard majority, it articulated essentially the same test as the Supreme Court.

Applying that test, the two separate, binding Fourth Circuit panel rulings held Article III jurisdiction exists over declaratory relief for coverage disputes.

“[A] dispute between a liability insurer, its insured, and a third party with a tort claim against the insured over the extent of the insurer’s responsibility for that claim is an actual controversy within the meaning of the federal Declaratory Judgement Act, even though the tort claimant has not reduced his claim against the insured to judgment.Nautilus, Ins. Co. v. Winchester Homes, Inc., 15 F.3d 371, 375 n.3 (4th Cir. 1994)(Emphasis supplied.) White v. National Union Fire Ins. Co., 913 F.2d 265, 168 (4th Cir. 1990.) (the lack of a judgment “does not make the claim any less definite and concrete, nor does it vitiate the adversity of the parties’ interests.”)

If a non-party to the insurance contract has standing, then why would the law deny standing to an actual party to the contract?

In sum, no common ground exists between Trustgard’s statement that “suits about the duty to indemnify …would ordinarily be advisory when the insured’s liability remains undetermined,” and the prior, binding statement that the federal system can resolve coverage “even though the tort claimant has not reduced his claim against the insured to judgment”—a holding repeated in White.

Be ready with this authority and argument when a federal judge tries to dismiss your coverage declaratory judgment action for supposed lack of subject matter jurisdiction. Trustgard cannot overrule the prior panel decisions in Nautilus and White, let alone the Supreme Court in Pacific Coal.

Trustgard provides another twist to prepare for. Because the Trustgard majority notes and accepts that the duty-to-defend can be determined before judgement, carriers might start pressing more aggressive positions trying to avoid that duty and thereby secure a no coverage declaration before a verdict in the tort case. Since the defense duty often hinges on the allegations in the tort complaint under Virginia’s four-corners rule, skillful pleading to avoid coverage defenses may now be even more important.