Western Casualty & Sur. Co. v. Evans
In Western Casualty & Sur. Co. v. Evans, 130 Ariz. 333, 336, 636 P.2d 111, 114 (App. 1981) Evans had been injured in a car accident, and in a subsequent malpractice action the jury found that her treating surgeon, Dr. Fridena, had committed malpractice in treating her leg. Id. at 334-35, 636 P.2d at 112-13.
Western Casualty defended Fridena in the lawsuit under a reservation of rights, but three months after the jury rendered a verdict in Evans's favor, it filed an action for a declaratory judgment that it was not liable to Fridena's estate for coverage on the date the malpractice had occurred. Id.
Evans and Fridena asserted statute of limitations and laches defenses, claiming Western Casualty's claim had accrued at the time the lawsuit against Fridena was filed because the malpractice had occurred nine years before, and it was aware of the claim against its insured. Id. at 335, 636 P.2d at 113.
The Court disagreed, noting:
As a legal representative of the insured, Fridena's estate could have brought a declaratory judgment action from the moment a justiciable controversy existed. We find that a justiciable controversy existed between Fridena and Western Casualty when it notified Fridena it was undertaking her representation under a reservation of right. From that point on, either party could have initiated a declaratory judgment action to clarify the coverage issue, but . . . neither did so. However, the fact that either party could have sought a declaration regarding coverage as of the filing of the reservation of right does not mean that the action accrued at that time for statute of limitation purposes.
"We believe that in cases where, as here, all determinative facts giving rise to the potential policy coverage dispute have occurred prior to the initial demand upon the insurance company, no actual controversy arises among the parties until such time as the issuing company is called upon to either pay or defend a claim on behalf of its insured under the terms of the policy in question. Since an actual controversy is required as a condition precedent to the institution of an action seeking a declaration of rights . . . no such action can accrue until such time. Until the insurance company is called upon to defend or pay the claim, the entire matter is within the realm of mere possibility, and parties ought not be placed in the position of failing to act at their peril in such unpredictable circumstances." Id. at 336-37, 636 P.2d at 114-15.