FEDERAL DISTRICT COURT HOLDS CLAIMANT IS A PROPER PARTY TO DECLARATORY JUDGMENT ACTION FOR DEFENSE & INDEMNITY

Last Monday, the Northern District of Texas, Dallas Division answered “yes” to the question of whether a claimant who is not yet a judgment holder may be involuntarily joined to the insurer’s declaratory judgment action.  Thus, the court rejected the claimant’s stratagem to dodge the binding effect of the declaratory judgment.  However, the court did not answer the question of whether the claimant must be joined. 

Vanliner Ins. Co. v. DerMargosian, No. 3:12-CV-5074-D, 2014 WL 113595 (N. D. Texas Jan. 13, 2014), involved an underlying suit in which the DerMargosians sued Arpin American Moving Systems for mishandling a packing and moving job.  The DerMargosians retained Arpin  to pack and move specific belongings to Dubai, while leaving others unpacked at their home in Texas. Arpin allegedly failed to accurately follow instructions, and mistakenly packed a pistol, which was shipped to Dubai with their other household goods.  As a result, Mr. DerMargosian was arrested in Dubai for possession of the pistol, incarcerated, and forced to stand trial.

Upon being sued, Arpin sought defense and indemnity from Vanliner, and Vanliner brought a declaratory judgment suit seeking to determine whether it had a duty to defend and indemnify Arpin.  Vanliner also named the DerMargosians as defendants.  The DerMargosians moved for dismissal, arguing they were not proper parties to the declaratory judgment action. They argued they were not in contractual privity with Vanliner, that Vanliner was not a party to the underlying suit, and that Vanliner was not asserting any claims directly against them in the declaratory judgment action. 

The court observed that an injured claimant is a third-party beneficiary under a liability policy.  While the claimant cannot directly enforce the policy until it holds a judgment against the insured, the insurer can nevertheless obtain a pre-judgment ruling on its duty to defend its insured, and can also obtain a pre-judgment ruling on its duty to indemnify in some circumstances.  The court also noted that a declaratory judgment obtained by the insurer is binding on a third-party beneficiary, if that beneficiary is joined as a party to the action.  The court refused to dismiss the DerMargosians, concluding they had a material and immediate interest in the question of Vanliner’s contractual duties, and there was an actual controversy among all of the parties.