The Louisiana Supreme Court held that the duty to defend in long latency disease cases should be prorated between the insurer and insured when the policies cover for only a portion of the time in which the exposure occurred. Arceneaux v. Amstar Corp., 2016 La. LEXIS 1675 (La. Sept. 7, 2016).
The underlying plaintiffs alleged that they worked at American Sugar's refinery during various years ranging from 1941 to 2006, and suffered hearing losses from exposure to loud noise in the course of their work. For many of these years, American Sugar was self-insured. For other years, various insurers provided policies. Continental Casualty Company provided liability policies to American Sugar covering bodily injury from December 31, 1975 through March 1, 1978, or a period of 26 months. Continental agreed to pay 25% of the past and future defense costs, subject to a reservation of rights.
In the ensuing lawsuit, American Sugar moved for partial summary judgment, contending that Continental owed a duty to defend, including a complete defense and reimbursement of defense costs expended plus interest. The trial court granted American Sugar's request for a complete defense going forward, but denied the motion's request for past defense costs.
The Supreme Court noted there was no Louisiana precedent on whether an insurer's duty to defend may be prorated among insurers and the insured during periods of self-insurance in long latency disease cases. Nationwide, the pro rata allocation method and the joint and several allocation method were used.
Under the pro rata allocation, carriers of triggered policies were responsible for a share of defense costs based at least in part on the period of time they were on the risk. Defense costs were divided among insurers, and if the insured was not covered for certain periods, the insured was responsible for its pro rata share. Under the joint and several allocation, the insured selected one insurer that was on the risk and held it liable for the entire loss up to policy limits. This insurer then had the burden of collecting contribution from other insurers.
The court adopted the pro rata allocation method for defense costs based on the policy language. The joint and several allocation approach provided a disincentive to insureds to purchase uninterrupted insurance coverage and provided a windfall to companies that failed to obtain continuous coverage. The pro rata allocation method, by contrast, promoted risk spreading.
Therefore, the amount of time an insurer was on the risk was an appropriate formula for pro rata allocation. Continental was only responsible for its pro rata share of defense costs based on its policy periods. A petition for rehearing was denied by the Louisiana Supreme Court on October 19, 2016.
