Eleventh Circuit Holds Tort Claimants Lack Standing to Challenge Judgment That Insurer Has No Duty to Defend

On March 29, 2022, the Eleventh Circuit Court of Appeals held that a tort claimant lacks standing to challenge a court's judgment finding that the carrier had no duty to defend the insured.

A.B. was 10 years old when she was sexually abused by her parent and her parent's spouse. The spouse was ultimately indicted, pleaded guilty to two counts of human trafficking, and was sentenced to 30 years in prison per count.

In her suit against the convicted human trafficker in Alabama state court, A.B. engaged in discovery to find any property and casualty insurance policies that may have covered the convicted felon. A.B. informed Nationwide Mutual Insurance Co. that she would seek coverage and indemnification under the felon's Nationwide policies should she prevail in the action.

Nationwide sought a declaratory judgment in Alabama district court that it did not owe a duty to defend or indemnify the felon in the state court action filed by A.B. The indemnification issue was dismissed by the district court, as it was not ripe. When Nationwide moved for summary judgment on the issue of its duty to defend, the court ruled in its favor and held that it did not have a duty to defend the felon.

When A.B. appealed the district court's ruling, the Eleventh Circuit noted that for A.B. to have Article III standing, she must have "suffered a concrete and particularized injury that is fairly traceable to the challenged conduct" and not merely have "a keen interest in" the district court's judgment.

The court distinguished the Supreme Court's ruling in Maryland Casualty Co. v. Pacific Coal & Oil Co., 312 U.S. 270 (1941), and the Fifth Circuit's ruling in Dairyland Insurance Co. v. Makover, 654 F.2d 1120 (5th Cir. Unit B 1981), in which standing was found for tort claimants appealing declaratory judgments of no coverage under insurance policies and proceeded to define the issue before it as follows:

This appeal presents a different question: whether a declaratory judgment that an insurer has no duty to defend an insured injures a tort claimant so as to confer Article III standing to appeal. [The Fifth Circuit and Seventh Circuit cases] both involved actions that had a direct bearing on whether the tort claimant could recover from the insurer because they addressed whether the insurer had any duty to indemnify the insured. Those decisions did not address whether a declaratory judgment that the insurer has no duty to defend injures a tort claimant like A.B.

Given the issue of first impression, the Eleventh Circuit looked to the Seventh Circuit's holding in Grinnell Mutual Reinsurance Co. v. Reinke, 43 F.3d 1152 (7th Cir. 1995), and the Sixth Circuit's holding in Allstate Insurance Co. v. Wayne County, 760 F.2d 689 (6th Cir. 1985), for instruction. Both the Seventh and Sixth Circuits have held that tort claimants lack standing to appeal a declaratory judgment of no duty to defend.

The Eleventh Circuit dismissed A.B.'s appeal finding that the declaratory judgment against the convict that Nationwide had no duty to defend did not injure A.B. The court rejected the idea that the declaratory judgment rose to the level of a concrete and particularized injury to A.B. that would give her Article III standing.

[T]he district court declared that Nationwide owes no duty to defend [the convict] in A.B.'s state court action. The result of that declaratory judgment is that Nationwide is not required to defend [the convict] in that action. And a "declaratory judgment relieving [Nationwide] of any obligation to defend [the convict] help[s] rather than harm[s] [A.B.]" because "[A.B.] want[s] a weak defense" in her state court action, "not a strong one."

In other words, if Nationwide does not have to defend the convicted human trafficker in the suit, A.B. would be in a better, not worse, position since she would not have to litigate against experienced insurance counsel. Perhaps even better, she may find herself litigating against a pro se defendant or be the beneficiary of a default judgment should no appearance be made by the convicted human trafficker, as was the case for Nationwide in the district court action.

Thus, on the issue of appellate courts' jurisdiction to hear a tort claimant's appeal of a declaratory judgment vis-a-vis an insurer's duty to defend against her tortfeasor, circuit courts remain aligned in holding that they do not have jurisdiction because, and so long as, tort claimants such as A.B. lack the prerequisite standing.