American_Sugar_Refining_Arabi_1913_PostcardRecently, the Louisiana Supreme Court in Arceneaux et al. v. Amstar Corp. et. al, 2015-0588 (La. 9/7/16, 1) decided that, in long latency disease cases, an insurer’s payments of defense costs may be prorated when the insurer’s occurrence-based policy was effective only during part of the plaintiffs’ exposure years.

Plaintiffs in Arceneaux alleged hearing loss from occupational noise exposures at American Sugar Refining, Inc.’s (“American Sugar”) facility in Arabi, Louisiana. Id. at 1-2. The approximately one hundred plaintiffs’ exposures occurred between 1941 – 2006. Id. at 2. Continental Casualty Company (“Continental”) issued eight general liability policies to American Sugar, effective from March 1, 1963 – March 1, 1978. Id. Each policy contained bodily injury exclusions for injuries that American Sugar employees experienced in the course and scope of their employment. Id. Importantly, in the last policy, the exclusion was deleted by special endorsement. Id. That endorsement was effective on December 31, 1975, and provided bodily injury coverage through March 1, 1978, for a total of twenty-six months. Id.

American Sugar brought a third-party demand against Continental alleging that Continental’s duty to defend required a complete defense in accordance with the policy, even if some of the plaintiffs’ claims fell outside of the coverage period. Id. Continental asserted that defense costs should be prorated amongst the insurers, and periods of non-coverage should be borne by the insured. Id. Particularly, Continental maintained that a complete defense was improper because its policies only covered twenty-six months of the alleged sixty-year exposure period.  Id.

Prior to assessing the merits of Continental’s argument, the Court distinguished an insurer’s duty to defend from its duty to indemnify. Id. at 5. The duty to defend “arises whenever the pleadings against the insured disclose even a possibility of liability” Id. (emphasis added). In contrast, an insurer’s duty to indemnify in long latency disease cases requires liability “to be prorated among insurance carriers that were on the risk during periods of exposure to injurious conditions” Id. at 5-6 (citing Norfolk S. Corp. v. California Union Ins. Co., 2002-0369, pp. 42-43 (La. App. 1. Cir. 9/12/03), 859 So.2d 167, 197-98, writ denied, 2003-2742 (La. 12/19/03), 861 So.2d 579). While Louisiana courts determined that proration is proper in regard to an insurer’s duty to indemnify, no such precedent existed as to its duty to defend. Id. at 6-7. Thus, prior to Arceneaux, insurers and insureds had no defined method to allocate defense costs in latent disease lawsuits.

At the outset of its analysis, the Court discussed two nationwide approaches to allocating defense costs in long latency disease cases: the pro rata allocation, and joint and several allocation. Id. at 7. “Under pro rata allocation, insurance carriers of triggered policies are responsible for a share of defense costs based at least in part on the period of time they are on the risk.” Id. If an insured has periods of non-coverage after defense costs are divided, then an insurer only pays its pro rata share. Id. Conversely, joint and
Continue Reading LA Supreme Court Ruling a Sweet One for Insurer