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Louisiana Supreme Court Rules That Defense Costs Should Be Prorated In Continuous Injury Suit

09.28.16
(Article from Insurance Law Alert, September 2016)

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Addressing a matter of first impression under Louisiana law, the Louisiana Supreme Court ruled that costs to defend continuous injury suits should be allocated on a time-on-the-risk pro rata basis, with pro ration to the insured for periods of no insurance.  Arceneaux v. Amstar Corp., 2016 WL 4699163 (La. Sept. 7, 2016). 

A Louisiana trial court and appellate court both ruled that Continental was required to provide American Sugar with a complete defense in an underlying suit alleging ongoing bodily injury, notwithstanding that its policies covered only twenty-six months of the approximate 60 year period of exposure.  The Louisiana Supreme Court reversed, ruling that Louisiana’s endorsement of pro rata allocation for indemnity costs applied to defense obligations as well.  Joining a growing number of jurisdictions, the court relied on the “during the policy period” policy language in concluding that pro rata allocation of defense costs is warranted.  The court stated: “While the duty to defend is broader than the duty to indemnify, neither obligation is broader than the policy’s coverage period in the context of long latency disease cases that trigger occurrence-based policies.”  On this basis, the court held that American Sugar is required to pay for its own defense during years in which it did not have insurance because “[t]o hold otherwise would entitle an insured to receive coverage for a period in which it did not pay a premium.”