The federal district court determined the excess carrier's declaratory judgment action to establish it had no coverage obligations should be stayed while the underlying case was still pending. Scottsdale Ins. Co. v. Ortiz & Assocs., 2014 U.S. Dist. LEXIS 64286 (D. Ore. May 9, 2014).
The subcontractor's employee was killed on the job site when struck by a dump truck owned by the general contractor, Inland Asphalt Co. Island was sued for wrongful death. Island was an additional insured under the subcontractor's primary policy and excess policy with Scottsdale.
Inland put Scottsdale on notice of the underlying wrongful death lawsuit, but did not tender its defense to Scottsdale.
While the underlying case was pending, Scottsdale initiated an action for declaratory judgment seeking a determination that there was no coverage. Scottsdale maintained that the auto liability exclusion in the excess policy precluded coverage for the underlying lawsuit. Inland moved to stay the coverage action until the underlying suit was resolved.
The court granted Inland's motion. The declaratory action put Inland in a conflicting position while the underlying suit remained pending. To defend itself in the coverage action, Inland may have to argue it was negligent in providing treatment to the decedent in some other manner that fell outside Scottsdale's auto exclusion. This is the classic "Proscutean Dilemma" forewarned by the Hawaii Supreme Court in Dairy Road Partners v. Island Ins. Co., Ltd, 92 Haw. 398, 417, 992 P.2d 93, 112 (2000). Such a position would conflict with a denial of liability in the underlying suit.