The Louisiana Supreme Court has held that an insurer's responsibility for defense costs in a long-latency disease case is limited to a pro rata share based on its time on the risk. Noting that there appeared to be no Louisiana precedent on this precise issue, the Supreme Court reversed the lower court's decision and ruled in favor of defendant Continental Casualty Company. See Arceneaux v. Amstar Corp., Case No. 2015-C-0588 (La. Sept. 7, 2016). Continental was represented in this matter by Glenn G. Goodier of Jones Walker LLP, and by Charles T. Blair, Stacey E. Rufe, and Rebecca L. Ross (retired) of Troutman Sanders LLP.
This matter arose from two underlying cases, in which approximately 100 plaintiffs alleged that they suffered hearing loss from exposure to unreasonably loud noise in the course of their employment at the insured's sugar refinery during years between 1941 and 2006. Continental issued eight general liability policies in effect between March 1, 1963 and March 1, 1978. However, those policies excluded coverage for claims involving bodily injury to employees, with the exception of claims involving bodily injury occurring between December 31, 1975 and March 1, 1978.
The subject of this appeal was a 2013 ruling of the trial court, affirmed in 2015 by Louisiana's Fourth Circuit Court of Appeal, requiring Continental to pay 100% of the defense costs going forward in the underlying litigation. The Supreme Court granted certiorari in August, 2015. After consideration of the policy language at issue and the approaches followed in other jurisdictions, the Supreme Court held the duty to defend should be prorated based upon Continental's policy language.
As an initial matter, the court noted that Continental's policy provided that it had "the right and duty to defend any suit against the insured seeking damages on account of . . . bodily injury." "Bodily injury" was defined as "bodily injury, sickness or disease sustained by any person which occurs during the policy period, including death at any time resulting therefrom." The court rejected the insured's argument this language required Continental to defend any suit that contained at least one allegation seeking damages that was potentially covered – and pay 100% of the defense costs. Instead, the court determined that this language limited the duty to defend to bodily injury which occurred during the policy period.
The court also reviewed conflicting authority from around the country, including the joint and several allocation method adopted in Keene Corp. v. Insurance Co. of North America, 667 F.2d 1034 (D.C. Cir. 1981), and the pro rata allocation method adopted in Insurance Co. of North America v. Forty-Eight Insulations, Inc., 633 F.2d 1212 (6th Cir. 1980). The court concluded that "[w]e are persuaded by the reasoning presented in Forty-Eight Insulations and its progeny and adopt the pro rata allocation method for defense costs in the case before us based on the policy language." It emphasized that the pro rata allocation approach to defense costs is equitable and "can be readily used in long latency disease claims in Louisiana."
The court further reasoned that pro rata allocation comported with the parties' reasonable expectations. "Based on the policy language," it stated, "neither party could reasonably expect that the insurer was liable for losses that occurred outside the policy coverage periods." The court stated that requiring the insured to pay for its defense during years in which it did not acquire coverage was reasonable because doing otherwise would grant the insured coverage "for a period in which it did not pay a premium" and provide a "windfall to companies that fail to obtain continuous coverage."
On this basis, the Supreme Court reversed the judgment requiring Continental to pay the insured's complete defense going forward and decreed that Continental was liable only for its pro rata share of defense costs. Noting Continental's contention that its pro rata share should be calculated as 3.74% for one of the underlying actions and 3.29% for the other, the court remanded the case to the trial court for further proceedings consistent with the foregoing.
A copy of the opinion is available here.
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