dissenting.
Generally, a declaratory judgment action is considered a proper vehicle for settling questions concerning the scope of insur-*864anee coverage. 10 Federal Procedure, Lawyers Edition §§ 23:21, 23:22 (1982). However, even a declaratory judgment proceeding must be based on an actual controversy rather than a hypothetical state of facts. Id. at 23:17. Whether a question is advisory often boils down to a judgment call as to “whether the facts alleged, under all the circumstances, show that there is a substantial controversy, between parties having adverse legal interests, of sufficient immediacy and reality to warrant the issuance of a declaratory judgment.” Jefferson v. Asplund, 458 P.2d 995, 999 n. 20 (Alaska 1969) quoting Maryland Casualty Co. v. Pacific Coal & Oil Co., 312 U.S. 270, 273, 61 S.Ct. 510, 512, 85 L.Ed. 826, 828-29 (1941).
Here, Providence’s potential liability for punitive damages assessed against Valdez is affected by a number of hypotheticals, including whether Valdez may and will ultimately be held liable for punitive damages. Nevertheless, in light of the general rule that an insurance company need not wait for a judgment to be rendered against its insured before contesting the existence and extent of its own liability, 10 Federal Procedure, Lawyers Edition § 23:22 (1982), an actual controversy can possibly be said to exist in this case.
The above notwithstanding, a finding that the question presented here is neither advisory nor moot does not end the inquiry. The basic question remains whether in this particularly case the issue is an appropriate one for declaratory judgment. I believe on balance that it is not, and that the lower court abused its discretion in granting re-, lief. A court should be wary of basing decisions on hypothetical questions of law even more than on hypothetical questions of fact.
This court prefers to wait for a more adverse representation to decide the issues of whether municipal corporations may be sued for punitive damages and whether public policy generally precludes insuring against them. Therefore, it seems extremely premature to decide that Valdez would nevertheless be able to insure against such damages and that the insurance policy at issue here in fact covered them.. Even if a decision here would not be advisory or moot, the court would nevertheless “fear for its own carelessness in acting when nothing seems to be at stake.” 13 C. Wright, A. Miller, & E. Cooper, Federal Practice and Procedure § 3533 at 266 (1975).
The parties have not demonstrated any harm that would befall them if the court withheld a decision at this time.1 Although the court’s construction of the contract may serve to clarify in a narrow sense the legal relations in issue, Jefferson v. Asplund, 458 P.2d at 998, the dangers involved in deciding secondary questions of law before primary ones would seem to outweigh the potential utility of a declaratory judgment in this case.
. At oral argument the parties seemed principally interested in getting the court to decide the underlying question of whether punitive damages can ever be assessed against a city, which the court is unwilling to do. Valdez also argued that a decision was needed to resolve a dispute over attorney’s fees, but Providence conceded that defense costs were not apportionable and .that, whatever the court’s decision on the question of punitive damages, it was obligated to defend every charge.