Declaratory Judgment Action Expense Reserving

In this paper's context, Declaratory Judgment Actions generally mean judges resolve coverage grant conflicts between the insurer and insured. They are most noticeable in the last decade in the context of whether old general liability insurance contractual language was meant to include latent-injury, environmental gradual or sudden & accidental pollution liability or direct first party property damage for cleanup expenses. Significant DJA activity also surrounds asbestos-related injuries and damages. The NAIC "Codification of Statutory Accounting" project has highlighted the need to bring current (widely divergent) DJA expense practice into logical uniformity. This paper identifies various issues (especially relating to recognition, measurement, and disclosure timing/standards) and provides a case study application of DJA expense reserving using a simplified Report year count (inventory model) and amount methodology. The article ends with some thoughts about how to analogize the Environmental DJA expenses of the recent past into the Y2K exposure that insurers imminently face. Coverage disputes will indisputably occur and best practices for accounting and reserving should be addressed.