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When must insurance pay damages in a car wreck?

When must insurance pay damages in a car wreck?
Axelrod & Associates, P.A.

When does insurance pay damages in a car wreck case? Can they get out of paying by filing a separate lawsuit?

An insured gets into a car wreck, it is their fault, and the other, injured, driver gets a verdict against the insured. Next, the insured’s insurance company pays the verdict, right?

Hopefully – it is not always that simple, though. Some auto accident cases involve two phases of litigation. First, who was at fault and how much are the damages? Once that is determined, the next question is, who will pay the damages?

Although, in many cases, the insurance company is on the hook to pay the verdict or settlement up their policy limits, they will do everything they can to get out of paying or to pay the least amount possible.

Consider Trustgard Ins. Co. v. Collins, decided by the Fourth Circuit Court of Appeals last month, where an insurance company went to the federal court and asked for a declaratory judgment that they did not have to pay – while the auto accident case was still pending in the state court and before liability had even been determined


In the Trustgard case, the driver and her passenger were injured after rear-ending a car trailer that was being pulled behind a tow truck. They filed suit against the driver of the tow truck, the owner of the truck, two passengers in the truck, and Michael Brown because the tow truck displayed Brown’s Interstate Commerce Commission number.

Part of the plaintiffs’ claims is that Brown is liable for the accident under various legal theories. Brown’s insurance policy, through Trustgard, includes a surety agreement that obligates Trustgard to pay up to $1,000,000 for “any final judgment recovered against the insured for public liability resulting from negligence in the operation, maintenance or use of motor vehicles.”

Although the car wreck case is pending in SC state court, Trustgard filed a separate lawsuit in federal district court asking the court to determine that Brown is not liable for the accident and, if he is, that Trustgard is not obligated to pay…

Why Did Trustgard File Suit in Federal Court?

The federal district court agreed with the insurance company, finding that Brown was not liable and Trustgard was not on the hook – the Fourth Circuit disagreed, however.

Why would Trustgard file a separate lawsuit, asking a federal court to decide issues (like Brown’s liability) that are already pending in a SC state court?

So, while we have no reason to think that Trustgard brought this suit to shop for a friendlier forum, the factual uncertainties in the record before us and the likelihood of entanglement with the state-court lawsuit compel us to dismiss the case.

Although the court politely says that it has “no reason to think that Trustgard brought this suit to shop for a friendlier forum,” could it be that Trustgard was… shopping for a friendlier forum, hoping to get a favorable ruling before the underlying case was resolved?

Article III Jurisdiction

Although the district court ruled in Trustgard’s favor, even going so far as to decide issues that are pending in the state court, the Fourth Circuit Court of Appeals reversed and dismissed Trustgard’s lawsuit.

Although the Court does not expressly hold that the federal court does not have jurisdiction of the matter, instead basing their decision on the district court’s abuse of discretion in granting the declaratory judgment, they also took pains to explain why the federal court does not have jurisdiction…

Courts are not permitted to give advisory opinions – an opinion as to something that has not yet happened. Because the state court lawsuit has not been resolved, Brown’s liability has not yet been determined, and therefore it would be an advisory opinion for the court to find that Trustgard is or is not obligated to pay for an injury that has not yet been determined by the state court:

Trustgard’s alleged injury-that it might have to guarantee a future judgment against Brown-is of a hypothetical and contingent nature: the injury may or may not occur depending on the outcome of the state lawsuit. If Collins does not win a state-court judgment against Trustgard’s insured, then a decision from this Court concerning Trustgard’s obligation to guarantee such a judgment will have no effect. Thus, before any determination of liability, we risk issuing an advisory opinion.

The Court distinguishes cases where an insurance company’s duty to defend is at issue – when a lawsuit is pending, the insurance company may be obligated to provide an attorney to defend their insured in court.

But, when liability has not been established and the insurance company’s duty to defend is not at issue, the court cannot give an opinion protecting the insurance company from a speculative judgment before the case has even been decided.

Declaratory Judgments and the Abstention Doctrine

After a long, ironic advisory opinion as to why the Court has no jurisdiction to give Trustgard an advisory opinion, the Court says, “That said, we need not resolve this constitutional question today. Even if jurisdiction could constitutionally be exercised, we should not do so.”

Instead, the Fourth Circuit found that the district court abused its discretion in exercising its jurisdiction (the jurisdiction it doesn’t have). The district court should not have granted the declaratory judgment because there is already a lawsuit pending in state court. By deciding the issues that were already before the state court, the federal court violated the Abstention Doctrine.

The parties were conducting discovery in the state court proceedings, the state court had more information before it than the federal court did, the state court is capable of deciding at least some of the issues in question, and the federal courts are not there to second-guess or preempt the state courts for the benefit of insurance companies…

But even where jurisdiction is not discretionary, courts may abstain from exercising jurisdiction under certain circumstances that may intrude on the prerogative of state courts… Abstention helps avoid duplicative litigation and interference with state-court proceedings. For similar reasons, in declaratory judgment actions, courts must consider whether “federalism, efficiency, and comity” counsel against exercising jurisdiction when an ongoing proceeding in state court overlaps with the federal case.

The district court engaged “in significant analysis of Appellants’ potential state law claims” and decided factual questions that were at issue in the pending state court case – violating the Abstention Doctrine.

By determining whether Trustgard was obligated to pay a future judgment – either through the insurance policy or through the endorsement to the policy – the district court issued an advisory opinion, which is also prohibited.


If you have been hurt in a car wreck in SC, your Myrtle Beach auto accident attorney on the Axelrod team will meet with you, investigate the accident, help you to determine all possible sources of recovery, and help you to recover maximum damages whenever possible through a settlement or lawsuit.

Call Axelrod and Associates now at 843-916-9300 or send an email through our website to set up a free consultation and case review today.


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