Declaratory judgments are meant as a vehicle for obtaining a ruling from a court, typically in advance of a breach of contract. E.g., Cal. Civ. § 1060 (“The declaration may be had before there has been any breach of the obligation in respect to which said declaration is sought.”). They are not meant ony for policyholders: an insurance company may seek a negative declaration from a court that there is no obligation to defend or indemnify; in the absence of a declaratory-relief remedy a carrier could not sue at common law for non-breach of contract. Declaratory relief – a form of equitable remedy (and not a separate cause of action) – does not require a breach of contract at the time of bringing suit; it is properly directed in futuro, that is, before the time for contractual performance is due. The power of a court to entertain a declaratory judgment is constrained by the advisory-opinion doctrine; in other words, one can bring a declaratory judgment so long as the dispute is sufficiently mature that a court ruling would be helpful, concrete and not advisory. See Marc Mayerson, Executability of Article III Judgments and the Limits of Congressional Discretion, 35 DePaul L. Rev. 51, 58-61, 63-64 n.71 (1985). If a case is nonjusticiable, then it is axiomatic that a statute of limitations cannot have started.

Just because a case is justiciable is not sufficient, however, to initiate the statute of limitation, which protects interests of repose and guards against staleness of evidence (among other things). There is some confusion, however, as to whether if one can bring a suit whether one must bring a suit.

If a breach-of-contract claim exists, the right way to plead the matter is one for damages or other relief appropriate to the contract claim. In other words, it is not necessary or really proper to plead an declaratory count for a declaration of duty (on an existing set of facts) and then a count for damages; such a claim is more properly styled as a breach-of-contract claim based on an existing set of facts; if the set of facts that would ripen a contractual duty has not yet occurred, then a declaratory-relief action would be proper.

Declaratory relief may lie regarding any issue of contractual interpretation, though a court maintains a residuum of discretion not to hear an action that otherwise is proper. Wilton v. Seven Falls Co.., __ U.S. __ (1995). In fact, declaratory relief actions were largely designed to facilitate the resolution of insurance disputes. Edwin Borchard, Declaratory Judgments and Insurance Litigation, 34 Ill. L. Rev. 245-270 (1939); Edwin M. Borchard, Declaratory Judgments (2d ed. 1941).

In the context of liability insurance, when a claim has been made against an insured, an insurer will then have a present obligation to respond. If the insurer does not assume the defense, for example, the duty to defend may have been breached. If it is anticipated that the claim will continue to be prosecuted against the insured, then the insurer will have future obligations to the insured, i.e., a declaratory relief action as to the insurer’s obligations in the future will be proper.

An insurer, like any other contractual party, can renounce its obligations even before the time for performance has occurred. This is an anticipatory repudiation, which is considered a present breach of contract at the time of repudiation. Hall v. Allstate Ins. Co., 880 F.2d 394, 397 (11th Cir. 1989); Snow v. Western Savings & Loan Ass'n, 730 P.2d 204 (Ariz. 1986). The nonbreaching party is as of that moment vested with the option to bring its breach of contract claim and obtain whatever damages it can show, subject to the rules for mitigation and proof of damages. (In the meantime, the insured may be freed of its obligations to provide further notice, provide proofs of loss, and the like.) However, through a repudiation, the breaching party cannot accelerate the running of the statute of limitations; the law allows the nonbreaching party the option to bring an immediate action for breach of contract or to await the time for contractual performance and bring an action at that time. See Lane v. Nationwide Mut. Ins. Co., 582 A.2d 501, 505 (Md. 1990). The nonbreaching party is vested with that option to allow the repudiator the opportunity to have a change of heart and to perform its obligations. Cf. Mobley v. New York Life Ins. Co., 295 U.S. 632 (1935).

This in part is the context for a recent decision of the Alaska Supreme Court, which addressed the question when the statute of limitations commences. Brannon v. Continental Cas. Co. (Alaska June 9, 2006). The court first ruled that “[a] cause of action for denial of coverage under an insurance policy accrues when coverage is disclaimed and the insured is notified.” Id. at 7 (footnotes omitted). While a breach-of-contract action may lie at that moment, the question is whether the insured necessarily must commence a lawsuit or risk forfeiting its claim for coverage. Usually, courts find that an insured is not required to bring an action for breach of the duty to defend until the claim against it is over. See Moffat v. Metropolitan Cas. Ins. Co., 238 F. Supp. 165, 175 (M.D. Pa. 1964). This avoids insureds being doubly burdened from the carrier’s nonperformance – fighting the defense case on its own and being required to sue its insurer simultaneously.

The Alaska court, following the California Supreme Court, held that, while the cause of action for breach of contract accrues upon the carrier’s refusal to perform, the limitations period is tolled while the underlying action is pending. Id. at 10. The Alaska court recognized that its holding was consistent with the majority result, which sometimes finds that due to the continuing nature of the breach by the insurer the insured’s damages are not finalized until the underlying action is concluded, and thus the statute of limitations does not commence. Under either approach, equitable tolling or simply ruling that the insured’s damages must be complete before the statute of limitations commences, the court found that “any prejudice [from awaiting until the underlying action was completed] should not be held against the insured” because “the insurance company has the ability and motivation to gather evidence.” Id. at 11. The court further recognized the unfairness of “requir[ing] the insured to file a lawsuit against the insurance company while simultaneously defending himself in the underlying lawsuit.” Id. at 12 (fn. omitted).

Regardless of the particular rationale, most courts that have carefully analyzed the question hold as the Alaska Supreme Court did that the insured must be permitted to await the conclusion of the underlying action before being at risk of losing its rights to insurance recovery. Yet to ensure that the value of the insurer's timely help is not lost, the insured has the option to bring an action seeking a declaration of the insurer’s obligation to defend on an ongoing basis and potentially for specific performance of the duty to defend. See Marc Mayerson, Insurance Recovery of Litigation Costs, 30 Tort & Ins. L. J. 997 (1995).