Lead Opinion
I iThis case concerns whether the duty to defend in long latency disease cases may be prorated, between insurer and insured when occurrence-based policies provide coverage for only a portion of the time during which exposure occurred. Continental Casualty Company (“Continental”) asserts that defense costs are to be prorated among insurers and the insured if there are periods of non-coverage. American Sugar Refining, Inc. (“American Sugar”) asserts that the duty to defend as agreed upon in the policy provides for a complete defense so long as the duty to defend attaches, even if some claims fall- outside of coverage. For the reasons set forth below, we hold that the duty to defend should be prorated in this case based upon policy language.
Facts and Procedural History
In the underlying Arceneaux suit, plaintiffs allege that they suffered hearing loss from exposure to unreasonably loud noise in the course of their work at | ¡American Sugar’s refinery in Arabi, Louisiana. Two sets of plaintiffs, the Barbe plaintiffs and the Waguespack plaintiffs, filed suit against American Sugar in 2006. These suits were consolidated with the Arcen-eaux action, which was filed in 1999 against American Sugar’s predecessor, Tate & Lyle North American Sugars, Inc. The case at bar concerns only the Barbe and Waguespack plaintiffs, and not the Arceneaux plaintiffs whose claims have been litigated extensively in the trial court, the court of appeal, and the Louisiana Supreme Court. See Arceneaux v. Amstar Corp.,
The plaintiffs, approximately 100 in number, allege that they worked at the refinery during various years ranging from 1941 to 2006.
The company will pay on behalf of the insured all sums which the insured ... shall become legally obligated to pay as damages because of
Y. bodily injury
Z. property damage
to which this insurance applies, caused by an occurrence, and the company shall have the right and duty to defend any suit against the insured seeking damages on account of such bodily injury or property damage, even if any of the allegations of the suit are groundless, false or fraudulent ....
The policy defines bodily injury as “bod-fly injury, sickness or disease sustained by any person which occurs during the policy period, including death at any time resulting therefrom.” (Emphasis added.) The policy defines occurrence as “an accident, including continuous or repeated exposure to conditions, which results in bodily injury or property damage neither expected nor intended from the standpoint of the insured.”
American Sugar brought a third party demand against Continental on September 19, 2007, alleging that Continental had issued policies that provide coverage for the Barbe and Waguespack claims. Furthermore, American Sugar alleged that Continental had been put on notice of the litigation in June 2006 and that Continental breached its policy provisions by failing to provide a defense. American Sugar sought past defense costs, a complete defense going forward, and penalties and attorney fees. Continental agreed to pay 25% of the past and future defense costs, subject to a full reservation of rights.
On May 22, 2013, American Sugar filed a Motion for Partial Summary Judgment seeking a declaration that Continental owes a duty to defend, including a duty to provide American Sugar a complete de
Continental took a suspensive appeal and argued that it should not be ordered to provide a complete defense given that its policies covered but twenty-six months of the approximately sixty-year exposure period alleged by the plaintiffs. The Fourth Circuit affirmed the trial court’s ruling holding that an insurer’s duty to defend is not subject to proration. Arceneaux v. Amstar Corp.,
| ^Standard of Review
Appellate courts apply a de novo standard of review in considering lower court rulings on summary judgment motions. Thus, we usé the same criteria that govern the district court’s consideration of whether summary judgment is appropriate. A court must grant a motion for summary judgment if the pleadings, depositions, answers to interrogatories, and admissions, together with the affidavits, if any, show, that there is no genuine issue as to material fact, and that mover is entitled to judgment as a matter of law, pursuant to LSA-C.C.P. art. 966(B). Here, there are no genuine issues of material fact. This case thus presents a question.of law.
Law and Analysis
At the outset, we must note that an insurer’s duty to defend is distinct from its duty to indemnify. Generally, an insurer’s obligation to defend suits filed against an insured is broader than its obligation to provide coverage for damage claims. Elliott v. Cont’l Cas. Co., 2006-1505 (La. 2/22/07),
As to an insurer’s duty to indemnify, liability is to be prorated among insurance carriers that were on the risk during periods of exposure to injurious conditions. Norfolk S. Corp. v. California Union Ins. Co., 2002-0369, pp.
The exposure theory, upon which the Louisiana allocation approach is based, relies on the principle that an insurer will only be responsible within the terms of its policy for those damages arising out of the period the policy is in effect. In short, each insurer is responsible, up to the limits of its policy, for all damages emanating from occurrences taking place during the insurer’s policy period. All damages emanating from occurrences taking place outside the policy period are covered by the insurer on the risk at the time the occurrence . took place.
Id. Further, in cases when claims arise out of occurrences that take place during a period in which no insurer is on the risk, a liable entity is assigned a pro rata share for purposes of indemnification. Id. at p. 43, 198.
While the aforementioned case law pertains to indemnification, there appears to be no Louisiana precedent on the precise issue the court is presented |7with in this case, which is 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, two general approaches to allocation of defense costs in long latency disease cases have emerged: the pro rata allocation method and the joint and several allocation method. 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. Defense costs are divided among insurers, and if the insured has periods of non-coverage, the insured is responsible for its pro rata share. Under joint and several allocation, the insured selects one insurer that is on the risk and holds it liable Lor
A leading decision in applying joint and several allocation is Keene Corp. v. Insurance Co. of North America.
Next, the court determined the extent of coverage for which each insurer was liable. The court noted that the policies provided that the insurer will pay on behalf of the insured “all sums” that the insured becomes legally obligated.to pay as damages because of bodily injury during the policy period. Id. at 1047. The court reasoned that the policies issued to the insured relieved it of the risk of liability for latent injury of which the insured could not be aware when it purchased insurance. Id. The court continued:
Keene did not expect, nor should it have expected, that its security was undermined by the existence of prior, periods in which it was uninsured, and in which no known or knowable injury occurred. If, however, an insurer were obligated to pay only a pro-rata share of Keene’s liability, as the district court held, those reasonable expectations would be violated. Keene’s security would be contingent on the existence and validity of all the other applicable policies. Each policy, therefore, would fail to serve its function of relieving Keene of all risk of liability. The logical consequence of this is that the policies must require that once an insurer’s coverage is triggered, the insurer is liable, to Keene to the full extent of Keene’s liability up to its policy’s lim*284 its, but subject to ‘other insurance’ clauses.
Id. at 1047-48. The court noted that there is “nothing in the policies that provides for a reduction of the insurer’s liability if an injury occurs only in part during a policy period” and that it had “no authority upon which to pretend that Keene also |nhas a ‘self-insurance’ policy that is triggered for periods in which no other policy was purchased.” Id. at 1048-49. The Keene court also held that only one policy’s limits can apply to each injury and that Keene was not entitled to “stack” applicable policies’ limits of liability. Id. at 1049.
As to allocation of liability, the court reasoned that in asbestos-related disease suits, it is likely that the coverage of more than one insurer will be triggered. Id. at 1050. The court stated:
Because each insurer is fully liable, and because Keene cannot collect more than it owes in damages, the issue of dividing insurance obligations arises. The only logical resolution of this issue is for Keene to be able to collect from any insurer whose coverage is triggered, the full amount of indemnity that it is due, subject only to the provisions in the policies that govern the allocation of liability when more than one policy covers an injury.
Id.
Finally, the Keene court determined the insurers’ liability for defense costs. It reasoned that because the policies provide that the insurer shall defend any suit against Keene for damages due to bodily injury, and because it held that each insurer is fully liable to Keene for indemnification, “it follows that each is fully liable for defense costs.” Id. Thus, the reviewing court reversed the district court’s judgment that held indemnification and defense costs are to be prorated, and it held that such costs should be allocated under the joint and several scheme.
Other jurisdictions have concluded differently, although dealing with essentially the same policy language. The seminal case applying the pro rata allocation method is Insurance Co. of North America v. Forty-Eight Insulations, Inc.,
In Forty-Eight Insulations, the insurer sought a declaratory judgment to establish that the insured was responsible for a portion of its defense costs and liability for an asbestos action brought against it because it had been self-insured | mfor a period of time. Id. at 1215. The insured, Forty-Eight Insulations, Inc., claimed it had coverage for all the years in which exposure was alleged, but some of the policies had been lost or destroyed. Id. at 1215n. 4. Faced with substantially similar insurance policies
The duty to defend arises solely under contract. An insurer contracts to pay the entire cost of defending a claim which has arisen within the policy period. The insurer has not contracted to pay defense costs for occurrences which took place outside the policy period.
Id. at 1224-25. In Forty-Eight Insulations, the court applied the exposure theory to indemnity liability, and stated that the exposure theory established that a reasonable means of proration was available in allocating defense costs. Id. at 1225.
As to allocating defense costs to an insured for periods of no coverage, the Forty-Eight Insulations court held that it was reasonable to treat the insured as an insurer for periods of time in which there was no triggered policy. Id. The court speculated that were the court to adopt a rule whereby once the duty to defend was triggered, an insured would be owed a full defense even if there were gaps in coverage, “a manufacturer which had insurance coverage for only one year out of 20 would be entitled to a complete defense of all asbestos actions the same as a manufacturer which had coverage for 20 years out of 20. Neither logic nor precedent support such a result.” Id.
Another court that adopted the pro rata method of apportioning defense costs is the Supreme Court of New Jersey in Owens-Illinois, Inc. v. United Insurance Co.
The theory of insurance is that of transferring risks. Insurance companies accept risks from manufacturers and either retain the risks or spread the risks through reinsurance. John A. Appleman & Jean Appleman, 13A Insurance Law and Practice § 7681 (1976). Because insurance companies can spread costs throughout an industry and thus achieve cost efficiency, the law should, at a minimum, not provide disincentives to parties to acquire insurance when available to cover their risks. Spreading the risk is conceptually more efficient.
Id. at 992; see also Sec. Ins. Co. of Hartford v. Lumbermens Mut. Cas. Co.,
Across the country in cases where “it has been determined that the insured is self-insured for part of the coverage period, the weight of authority is that the insured must bear a pro rata share of the defense costs.” Barry R. Ostrager & 11gThomas R. Newman, Handbook on Insurance Coverage Disputes, § 6.02(a)(2) (17th ed. 2014).
The duty to defend arises, solely under contract. Arceneaux, p. 21,
American Sugar argues that under the terms of the pqlicy Continental must “defend” “any suit” that contains at least one allegation seeking damages that is potentially covered. However, the policy language limits coverage for bodily injury to that which occurs during the policy period.
[, ..¡Moreover, applying the pro rata method of allocation here does not violate the reasonable expectations of the insurer or the insured. Based on the policy language, neither party could reasonably expect that the insurer was liable for losses that occurred outside the policy coverage periods. See Sec. Ins. Co. of Hartford,
We note also that “subject to the rules on insurance contract interpretation, insurance companies have the right to limit coverage in any manner they desire, so long as the limitations do not conflict with statutory provisions or public policy.” Edwards v. Daugherty, 03-2103, 03-2104 (La. 10/1/04),
Additionally, as recognized by Forty-Eight Insulations and its progeny, the pro
Here, American Sugar will be required to pay for its defense during years in which it did not acquire an insurance policy that would be triggered by the instant litigation. As noted by Forty-Eight Insu-lations, such a result is “reasonable” as the joint and several scheme would treat an insured who had uninterrupted policies for twenty years the same as an insured who had a triggered policy for one year.
The decision to prorate defense costs in this case is buttressed by our decision in Southern Silica of Louisiana, Inc. v. Louisiana Insurance Guaranty Ass’n.
In the case of a claimant alleging personal injury or death caused by exposure to asbe’stos fibers or other claim resulting from exposure to, release of, or contamination from any environmental pollutant or contaminant, such claimant must first exhaust any and all other insurance available to the insured for said claim for any policy period for which insurance is available before recovering from the association, even if an insolvent insurer provided the only coverage for one or more policy periods of the alleged exposure.
' .Section 3 of Act 108 further provided that: “[t]his Act shall apply to all covered claims, as defined in R.S. 22:1379, pending or arising after the' effective date of the Act.”
While the court of appeal determined that there was an impairment of contract as the statute required the insured to assert its claims against the solvent insurers when there were no contracts in effect and where the insurers did not receive premiums, this court held that the statute could
The above provision merely states the order in which a claim must be handled. The claimant must “first” collect other insurance “available to the insured” before the claimant can collect from LIGA. What is “available” is the pro rata share of each insurer for each year that insurer was on the risk. Thus, the amendment provides a procedure for asserting a claim against LIGA: the claimant must “exhaust” the other solvent insurers’ pro rata shares of his or her damages before asserting a claim against LIGA to pay Reliance’s pro rata shares. This reading of the amended statute comports with Louisiana’s use of the significant exposure theory in long latency disease cases and its component, proration of insurance coverage. Even if the monetary limits of each policy is far in excess of the prorated share, there is no authority in the legislation for the courts to assess an insurer with an amount in excess of the prorated amount of the. claimant’s damages, as would be necessary if the insurer were, to “fill the gap” of the Reliance years.
Id. at p. 12, 468-69 (footnote omitted). We note that the decree in Southern Silica stated in part: “Because LIGA also owes Southern Silica a defense for the 1977-1982 time period, indemnification for defense costs borne by Southern Silica can | ifibe recovered from LIGA upon proper proof thereof.” id. at p. 14, 469. The Southern Silica decision concerned itself with the interpretation and constitutionality of a statute, and it contains no recitation of law or analysis on the duty to defend. Yet, the holding in Southern Silica and the holding in the instant case appear to be consistent.
In contrast to Southern Silica is a Texas silicosis case that was similarly concerned with whether an insured must exhaust coverage from solvent insurers before the insurance guaranty association’s duty to assume the obligations of an impaired insurer was triggered under the state’s Guaranty Act.
Having concluded that defense costs áre to be prorated in this case, we now determine the formula for allocation. Some courts take into consideration policy limits in 'conjunction with time on the risk. For example, in Owens-Illinois, the New Jersey Supreme Court determined that a special master should be appointed to create a formula for calculating indemnity and defense costs.
In this case, however, the amount of time an insurer was on the risk would | lsseem to be the appropriate consideration. Because the duty to defend is distinct from the duty to indemnify, the details of the policy need not enter the equation of how defense costs are to be allocated so long as the policy is triggered. Additionally, in this case there are periods where there is no policy in effect and thus where there are no policy limits. Thus, we conclude a time on the risk assessment is appropriate in this case. See Forty-Eight Insulations,
Decree
We reverse the trial court’s grant of the partial summary judgment that ordered Continental Casualty Company to pay for American Sugar’s complete defense going forward in the Barbe and Waguespack cases. We conclude that Continental is liable for its pro rata share of defense costs based on its policy periods, noting its contention that its pro rata share should be calculated at 3.74% of the total in Barbe and 3.29% in Waguespack, and remand to the trial court for further proceedings consistent with the foregoing.
REVERSED AND REMANDED.
Notes
. In the previous Arceneaux decisions, whether defense costs could be prorated was not at issue. Initially, Continental was defending the insured without a reservation of rights. Arceneaux III, p. 2,
. The Barbe suit was filed on January 17, 2006 and, as supplemented and amended, alleged that the plaintiffs had suffered occupational hearing loss due to noise exposure while employed at the refinery between 1946 and 2005. The Waguespack suit was filed on April 6, 2006 and, as amended, alleged that the plaintiffs had suffered occupational hearing loss due to noise exposure while employed at the refineiy between 1941 and 2006.
. Before this court granted Continental’s writ, we requested additional briefing on the effect and applicability of Arrant v. Graphic Packaging International, Inc. 2013-2878 (La. 5/5/15),
. The policies in Keene provided that • “(t)he company will pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of bodily injury ... to which this insurance applies, caused by an occurrence, and the company shall have the right and duty to defend any suit against the insured seeking damages on account of such bodily injury ... even if any of the allegations of the suit are groundless, false or fraudulent .,” Keene,
. The policy language in Forty-Eight Insula-tions provided:
[The insurer] will pay on behalf of the insured all sums which the insured shall be legally obligated to pay as damages because of ... bodily injury or ... property damage to which this policy applies caused by an occurrence.
"Bodily injury” means bodily injury, sickness or disease sustained by any person which occurs during the policy period, including death at any time resulting therefrom.
"Occurrence” means an accident, including injurious exposure to conditions which results, during the policy period, in bodily injury ....
Forty-Eight Insulations,
. See, e.g., Gulf Chem. & Metallurgical Corp. v. Associated Metals & Minerals Corp.,
. The relevant portion, of the Texas Guaranty Act, Tex. Ins. Code Ann., art. 21.28-C, § 12(a) (West Supp.1998), stated in part:
A person who has a claim against an insurer under any provision in an insurance poli- ' cy other than a policy of an impaired insurer that is also a covered claim shall exhaust first the person’s rights under the policy, including any claim for indemnity or medical benefits under any workers’ compensation, health, disability, uninsured motorist, personal injury protection, medical payment, liability, or other policy, and the right to defense under the policy.
Concurrence Opinion
concurs in the result.
| iWith all due respect, I concur in the result because I find the opinion tends to be confusing. In my view, the issue of whether Continental is entitled to a pro
The company will pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of
A. bodily injury or
B. property damage
to which this insurance applies, caused by an occurrence, and the company shall have the right and duty to defend any suit against the Insured seeking damages on account of such bodily injury or property damage, even if any of the allegations of the suit are groundless, false or fraudulent....
Thus, Continental has an obligation to pay damages because of “bodily injury ... to which this insurance applies” and to defend “any suit ... on account of any such bodily injury.” The policy defines “bodily injury” as “bodily injury, sickness, or disease sustained by any person which occurs during the policy period, including death at any time resulting therefrom.” The clear language of the policy limits Continental’s coverage for indemnification of liability and defense costs for bodily injury occurring during the policy period. Thus, the defense costs should be ^prorated according to the terms of its policy.
This is essentially a simple insurance contract case requiring us to apply fundamental principles of contract interpretation. Magnon v. Collins, 98-2822 (La. 7/7/99),
Because this is exclusively a matter of contract law, I find the opinion’s focus on other courts’ analyses concerning indemnification for liability in long latency disease cases involving principles of tort law to be both misplaced and confusing. Accordingly, I concur in the result.
additionally concurs and assigns reasons.
hi agree with the majority opinion in this case. I write separately to point out, as an initial matter, that as we remarked in Cole v. Celotex Corp.,
Additionally, I believe the majority opinion adoption of the pro rata allocation method is mandated here for the several reasons. First, the policy language, in conjunction with the nature of long latency exposure, supports this result, because the policy limits coverage for “bodily injury” to that which occurs “during the policy period.” Second, for the reasons explained by the majority, the parties’ reasonable expectations are not violated by the application of the pro rata method. Because only injuries “during the policy period” are covered, injuries that occur outside of that period are, by their very nature, not cov