Unable To Prorate, Insurer On The Hook For 100% Of Defense

A Louisiana appellate court, applying Louisiana law, held that Continental Casualty Co. (“Continental”) cannot prorate its duty to defend based on time on the risk and therefore must provide a full defense going forward from the date of the decision to American Sugar Refining Inc. (“American Sugar”).

The underlying claims were brought in 2006 by employees alleging hearing loss from working at one of American Sugar’s refineries at various times between 1941 and 2006. Continental issued eight occurrence-based policies to American Sugar between 1963 and 1978. According to Continental, some of the policies had exclusions for claims made by employees of the company. In September of 2007, American Sugar brought a third-party demand against Continental alleging breach of the duty to defend under the insurance policies. Continental began paying a quarter of American Sugar’s defense costs in March 2008 while reserving its right to dispute its obligation to pay a defense. In May 2013, five years after filing its third-party demand, American Sugar brought a motion for partial summary judgment seeking reimbursement from Continental for 100% of the costs incurred in defending the litigation since its inception, as well as a declaration that Continental owed American Sugar a full defense going forward. The trial court, without explanation, granted the motion with regard to providing a complete defense going forward, but denied reimbursement for past defense costs.

The sole issue on appeal was whether the trial court erred in ruling that Continental was obligated to cover 100% of American Sugar’s defense costs in the litigation going forward from the date of its decision. The appellate court upheld the decision and found that the insurer must provide a complete defense, despite the fact that it only insured American Sugar for a portion of the time span identified in the underlying suits. Continental argued that, because it only provided coverage for 26 months of the 60-year period cited, its pro rata share of American Sugar’s defense costs should be limited to a little over 4%. American Sugar argued that Louisiana law requires an insurer to provide a full defense if any of the plaintiff’s claims are covered by the policy. The appellate court acknowledged that, with respect to indemnity, Louisiana law requires pro rata allocation based on time on the risk. However, the court held that the same principle does not apply to the broad duty to defend.

Continental argued that the trial court’s ruling ignored the law with respect to long latency diseases cases, as expressed by the Louisiana Supreme Court in Southern Silica of Louisiana, Inc. v. Louisiana Insurance Guaranty Ass’n. The appellate court noted that it agreed with Continental that Southern Silica seemed to indicate that the jurisprudence is moving in the direction of proration of the duty to defend. However, it found the case to be distinguishable, because the case involved the interpretation of a procedural statute and defense allocation was not an issue. Arceneaux v. Amstar Corp., No. 2014-CA-0271 (La. Ct. App. Feb. 25, 2015).