When it comes to insurance coverage litigation, a key tool used in coverage disputes is the declaratory judgment action. Once an insurance company determines that a declaratory judgment action must be filed to determine insurance coverage under its policy, there are certain parties that must be named as defendants for the complaint to survive dismissal. Generally, in Illinois, the parties or the court may raise the failure to join a necessary and indispensable party at any time because due process requires the joinder of all indispensable parties to an action. An Order entered without jurisdiction over a necessary party is void.
Necessary and Indispensable Party Defined
A necessary and indispensable party to the litigation is a person having an “interest in the subject matter of the suit which may be materially affected by the judgment entered in the person’s absence. The relevant inquiry is not whether the court’s judgment has in fact materially affected the absent individual’s interest in the subject matter in controversy. Instead, it is whether the absent person might claim a substantial and present interest which determines that the person is a necessary and indispensable party. When an indispensable party is absent, the court should not proceed to a decision on the merits.” Howerton v. Prudential Insurance Co. of America, 2012 IL App (1st) 110154 *P35.
When questions of liability insurance are litigated, claimants against the insured are ordinarily necessary parties to the action. The interest of the claimant “must be a present substantial interest as distinguished from a mere expectancy or future contingent interest.” Flashner Medical Partnership v. Marketing Management, Inc., 189 Ill.App.3d 45, 53-54, 545 N.E.2d 177 (1st Dist. 1989). Generally, tort claimants have interests in the outcome of declaratory judgment actions because a declaration of non-coverage would eliminate a source of funds. Id.
Naming Parties in a Declaratory Judgment Action
When filing a declaratory judgment action the insurance company must name the person or entity claiming coverage under its policy as well as the underlying tort plaintiff to prevent dismissal. Many times, the attorney for the tort plaintiff will not play an active role in the case or will execute a stipulation to be bound by the judgment entered in the declaratory judgment case and can be dismissed from the case. However, there are times when the tort plaintiff will play a substantial role in the declaratory judgment case to ensure that there are funds for any settlement or judgment in their case.
If you would like more information on this topic or other insurance defense matters, please contact Kelly Purkey at McKenna Storer.