Insurance litigants in Pennsylvania—insurers and policyholders alike—have traditionally approached the determination of an insurer’s duty to indemnify an insured with respect to a third party action with the understanding that the question of indemnity may be adjudicated via a declaratory judgment action subsequent to an adverse judgment against the insured. In many cases, the pursuit of a declaratory judgment to obtain an answer to that question does not become necessary where the underlying third party action is either settled on behalf of the insured or the insured is successful in the defense of the action. The Pennsylvania Superior Court’s holding in Selective Way Insurance v. Hospitality Group Services, 119 A.3d 1035 (Pa. Super. Ct. 2015), however, may have altered this traditional approach to determining an insurer’s duty to indemnify and may require an insurer to take proactive and protective steps to preserve its right to litigate its duty to indemnify in the event of an adverse judgment against its insured.

In Selective Way, the Pennsylvania Superior Court ruled that the determination of the duty to defend and the duty to indemnify are inextricably intertwined such that the statute of limitations for an insurer to file a declaratory judgment action regarding its duty to defend and indemnify its insured begins to run when the insurance company has a “sufficient factual basis” to support its contentions that it has no duty to defend or indemnify the insured.

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