North Carolina Adjuster Practice Exam

What is the purpose of a declaratory judgment action?

1. To prevent fraud

2. To determine coverage issues

3. To clarify insurance terms

4. To expedite claims

The correct answer is: To determine coverage issues

A declaratory judgment action serves primarily to resolve uncertainties regarding the rights and obligations of the parties under an insurance contract. This legal mechanism is particularly useful in determining coverage issues, where the parties may disagree about the applicability of policy provisions to a specific set of facts. In the context of insurance, when an insurer and insured have differing interpretations of the policy, a declaratory judgment action allows a court to clarify these issues. The court reviews the policy language in conjunction with the facts of the case to determine whether coverage exists for a particular claim. This process can help prevent prolonged disputes and provide both parties with certainty about their legal positions. While preventing fraud, clarifying insurance terms, and expediting claims can be important aspects of the insurance process, they do not specifically encapsulate the main purpose of a declaratory judgment action, which is focused on resolving coverage disputes and clarifying the parties' rights under the insurance policy.