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(Article from Insurance Law Alert, March 2015)

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A Louisiana appellate court ruled that an insurer was required to fully fund a policyholder’s future defense costs in a long latency disease case even though the insurer’s policies covered less than five percent of the time span during which underlying plaintiffs’ alleged exposure occurred. Arceneaux v. Amstar Corp., 2015 WL 798980 (La. Ct. App. Feb. 25, 2015).

The coverage dispute arose out of occupational hearing loss claims asserted by employees of the policyholder, American Sugar. The suit alleged that employees’ exposure to industrial noise at American Sugar’s refinery resulted in hearing loss. American Sugar sought coverage from Continental under liability policies in effect from 1963 to 1978. Continental did not provide a defense, but agreed to pay twenty-five percent of the defense costs, reserving its right to contest its duty to defend. Thereafter, American Sugar filed suit seeking reimbursement from Continental for 100% of the defense costs incurred in the underlying litigation since its inception, as well as a declaration that Continental owed a full defense going forward. In response, Continental argued that Louisiana law allows for the proration of defense costs based on an insurer’s time on the risk in long latency disease cases, and thus that Continental was responsible for only 4.3 percent of the total defense costs (reflecting its 26 month period of coverage during a 60 year period of exposure). A Louisiana trial court disagreed and granted American Sugar’s summary judgment motion as to future defense costs, but denied the claims for reimbursement for past defense costs. The appellate court affirmed.

Although Louisiana law endorses pro rata allocation of indemnity costs among insurers in continuous injury cases, Louisiana courts have not directly addressed whether such allocation should extend to defense costs as well. Although the court noted that numerous other jurisdictions have applied pro rata allocation to defense costs as a matter of equity, the court declined to do so here. The court acknowledged that the Louisiana Supreme Court "seem[ed] to indicate that the jurisprudence is moving in the direction of proration of the duty to defend," see Southern Silica of La., Inc. v. La. Ins. Guar. Ass’n, 979 So.2d 460 (La. 2008), but nonetheless concluded that precedent was "fundamentally distinguishable from the present case." An appeal may be forthcoming, as the appellate court expressly noted that the present case presented an opportunity for the Louisiana Supreme Court to "decide to extend and/or clarify the law on this issue."