Other Insurers Impacted by Determination of Relationship of Claims are Necessary Parties in a Declaratory Judgment Action

A federal district court in California has held that, where an insured and an excess insurer dispute whether certain claims are related, and the resolution of that dispute would affect the availability of coverage under policies issued by other carriers, the other carriers are necessary and indispensable parties to the coverage litigation. Navigators Ins. Co. v. Dialogic, Inc., et al., 2014 WL 2196403 (N.D. Cal. May 27, 2014).

An excess insurer under a 2007 policy filed a declaratory judgment action against a policyholder, seeking a determination of its coverage obligations.  The policyholder was covered under a 2007 and a 2010 primary policy, both issued by the same insurer, and a 2010 excess policy issued by another excess insurer.  In 2008, the policyholder filed a claim with its 2007 primary insurer, and the insurer provided a defense.  In 2011, the policyholder faced another claim, and the policyholder and the 2007 excess insurer disputed whether the claim related back to the 2007 policy period.

In the coverage litigation between the 2007 excess carrier and the policyholder, the court held that the primary insurer under the 2007 and 2010 policies and the 2010 excess insurer were necessary parties under Rule 19 of the Federal Rules of Civil Procedure.  Because the resolution of whether the 2008 and 2011 claims were related claims would determine the coverage obligations of both of those insurers, and because a judgment in this action would not otherwise bind those insurers, the court concluded that joinder of those insurers was necessary to avoid inconsistent judgments.  After finding that joinder would destroy diversity, the court also held that the other insurers were indispensable parties, concluding that judgments rendered in their absence would prejudice them and that relief could not be fashioned in a way to avoid such prejudice.  Therefore, the court granted the policyholder’s motion to dismiss the 2007 excess insurer’s declaratory judgement action.