ACCIDENTS OR OCCURRENCES
Coverage is only excluded if both the act and the resulting the injury are intended. Ark-La-Tex Timber Co. v. Georgia Cas. & Surety Co., 516 So.2d 1217 (La. Ct. App. 1987)(citing Pique v. Saia, 450 So.2d 654 (La. 1984). Accord, Menard v. Zeno, 501 So.2d 242 (La. App. 1990), leave to appeal denied, 558 So.2d 744 (La. 1990)(injured must have been subjectively intended or "substantially certain" to follow from deliberate acts). Further, the insured must have expected or intended the particular injury that results. If a serious injury results and the insured only meant to cause minor injury, coverage is not barred. Breland v. Schilling, 550 So.2d 609 (La. 1989). Louisiana applies a subjective standard for measuring intent. Breland and Great American Ins. Co. v. Gaspard, No. 92-C-0702 (La. November 30, 1992)(arson).
"An act is intended if the perpetrator desires the results of his action or he believes that the results are substantially certain to occur." Further, the trier of fact must take into account the insured's reasonable expectations of coverage. Courts will not refuse to provide coverage where the resulting injury is far more severe than what was intended. Yount v. Maisano, 627 So.2d 148, 151 (La. 1992). If the insured intends to cause serious injury and a serious injury of any sort occurs, there is no coverage. Great American Ins. Co. v. Gaspard, 608 So.2d 981 (La. 1992). Intent must be established in most cases by proof of the insured's subjective understanding of the consequences of his actions. Menard v. Zeno, 558 So.2d 744, 748 (La. App. 1990). However, an intent to injure may be inferred in cases of sexual assaults against minors, where the insured's conduct is deemed inherently injurious as a matter of law. Doe v. Smith, 573 So.2d 238 (La. App. 1990); Shaw v. Bourn, 615 So.2d 466 (La. App. 1993) and Belsom v. Bravo, 658 So.2d 1304 (La. App. 1993).
The Louisiana Supreme Court has ruled that separate allegations that the insured kidnaped the victim after raping her in a hotel room were outside the scope of an "assault and battery exclusion" since, although the rape allegations necessarily involve the assault and battery, the claims of kidnap might not involve force. Ledbetter v. Concord General Corp., 665 S.W.2d 1166 (La. 1996).
Where a waste processor knowingly discharged toxic pollutants through a refinery's pipelines, the court concluded that the insured knew that its actions would damage the refinery and, accordingly, held that there was no "occurrence" under the primary policy. Ashland Oil Co. v. Miller Oil Purchasing Co., 678 F.2d 1293 (5th Cir. 1982).
the scope of coverage for pre-"occurrence" policies, the Louisiana Court
of Appeal ruled in Foreman v. Jordan, 131 So.2d 796, 808 (La. App. 1961)
that the term "accident" refers to "some sudden and unexpected event taking
place without expectation, upon the instant, rather than something which
continues, progresses or develops." the court distinguished "occurrence"-type
policies, which are intended to provide coverage for property damage that
occurs or develops gradually over a period of years.
v. Rogers, 665 So.2d 440 (La. App. 1995) and Gaspard v. Northfield Ins.
Co., 649 So.2d 979 (La. App. 1994), the Court of Appeals ruled that an
exclusion for assault and battery applied to all claims related to such
conduct and therefore barred coverage for claims against property owner
even though assault was perpetrated by third party and insured's liability
was based on negligent failure to maintain premises. See also Trumps
v. Neville, No. 95-1298 (La. App. April 24, 1996)(allegations that a school
district was negligent in failing to prevent a rape on its premises were
subject to an "abuse or molestation" exclusion).
ALLOCATION AND SCOPE ISSUES
Efforts to allocate defense costs between covered and uncovered claims were rejected by the Fifth Circuit in a Louisiana case. Riley Stoker Corporation v Fidelity & Guaranty Insurance Underwriters, 26 F.3d 581, 589 (5th Cir. 1994).
The Louisiana Supreme Court has declared that “other insurance” causes only apply to indemnity, not the allocation of defense between multiple insurers. In such circumstances, each insurer is equally liable for defense costs. Great Southwest Fire Insurance Company v. CNA Insurance Company, 557 So.2d 966 (La. 1990).
has both an intermediate appellate court and a state Supreme Court.
Unfair or deceptive consumer practices are proscribed by La. Rev. Stat. Ann. § 51.1402 (West 1987). Unfair claims handling by insurers is regulated under Kan Stat. Ann. § 40-2404 (1981).
law, insurers owe an obligation of good faith and fair dealing to their
policyholders, including a duty to exercise good faith in settlement.
L.A.R.S. 22:1220. A statutory cause of action for the bad faith may
also be brought by a tort claimant. Theriot v. Midland Risk Ins.
Co., 1997 WL 261359 (La. May 20, 1997). However, the statutory cause
of action is limited to the five specific types of unfair and deceptive
practices listed in Section B including (1) misrepresenting pertinent facts
or insurance policy provisions relating to any coverages at issue; (2)
failing to pay a settlement within thirty days after an agreement is reduced
to writing; (3) denying coverage or attempting to settle a claim on the
basis of an application which the insurer knows was altered without notice
to, or knowledge or consent of the insured; (4) misleading a claimant as
to the applicable prescriptive; or (5) failing to pay the amount of any
claim due any person incurred by the contract within sixty days after the
receipt of satisfactory proof of loss from the claimant when such failure
is arbitrary, capricious or without probable cause." Section C of
the statute further provides that a claimant may be awarded double damages
or $5,000, whichever is greater, for any statutory breach.
The Louisiana Supreme Court has ruled that L.A.R.S. 22:1220 supports a private cause of action, even under a policy issued prior to the enactment of the statute in 1990, where the conduct in question occurred after the enactment of the statute. Manuel v. Louisiana Sheriff's Risk Management Fund, 664 So.2d 81 (La. 1995).
Bad faith was found on the basis of an insurer’s knowing misinterpretation of its policy in Haas v. Audubon Ins. Co., 722 So.2d 1022 (La. App. 1998). The court declared that “a possible [coverage] interpretation does not equate to a reasonable interpretation as the law requires.”
Whether an insurer’s conduct was reasonable must be based on the information known to it at the time of denial. Carlson v. Safeco Insurance Company, 499 So.2d 664, 667 (La. App. 1986).
Ten percent penalty interest and attorneys’ fees may be awarded for cases in which an insurer has denied coverage arbitrarily or capriciously. Louisiana revised Statutes 22:658 and Haas v. Audubon Ins. Co., 722 So.2d 1022 (La. App.1998).
La.R.S. 22:1220 provides that an insurer, including but not limited to a foreign line and surplus insurer, owes to its insured a duty of good faith and fair dealing. The statute enumerates various acts that will constitute unfair or deceptive practices, including the misrepresentation of pertinent policy terms and a failure to pay claims within 60 days of the presentation of a satisfactory proof of loss. The insurer may be assessed general or special damages for a breach of this duty as well as a fine not to exceed $5,000.00 or double the damages sustained, whichever is greater. Calogero v. Safeway Insurance Company of Louisiana, 2000 WL 39134 (La. January 12, 2000). An insurer will not be liable under the Act if it did not act arbitrarily or capriciously or otherwise had legitimate doubts about coverage to support its position. Louisiana Maintenance Services v. Certain Underwriters of Lloyd’s, London, 616 S2d 1250, 1253 (La. 1993) and Darby v. Safeco Insurance Company, 545 S2d 1022, 1029 (La. 1989).
An insurer may be liable for failure to settle within policy limits, notwithstanding the existence of any bona fide coverage dispute. Trahan v. Central Mutual Ins. Co., 219 So.2d 187, 194 (La. App. 1969). A demand to settle within policy limits is a necessary precondition to a lawsuit against an insurer for negligent failure to settle. Commercial Union Ins. Co. v. Mission Ins. Co., 835 F.2d 587, 588 (5th Cir. 1988). An insurer is not obligated to settle every claim when an offer is made within policy limits. However, it must evaluate such settlement possibilities in good faith taking into account the probability of the insured's liability, the extent of damages claimed, the amount of the policy limits, the adequacy of the insurer's investigation and the openness of communications between the insurer and the insured. Smith v. Audubon Ins. Co., 679 So.2d 372 (La. 1996). Thus, a liability insurer was held to have acted in bad faith and was declared fully liable for an excess verdict where the insurer had twice rejected opportunities to settle for its $25,000 policy limit despite clear liability and evidence that the claimed damages were in excess of the limit. Guidroz v. State Farm Mutual Auto Ins. Co., No. 97-200 (La. App. June 25, 1997).
There is no
cause of action for bad faith based upon an insurer's refusal to renew
a policy. Gautreau v. Southern Farm Bureau Cas. Co., 429 So.2d 866
Allegations of emotional distress have been held to fall within the scope of coverage for a “bodily injury.” Crabtree v. State Farm Insurance Company, 632 S.2d 736, 738 (La. 1994)(emotional distress suffered by wife arising out of her husband’s motorcycle accident held covered). See also Nelson v. Want Ads of Shreveport, Inc., 720 S.2d 1280, 1283 (La. App. 1998)(“the policy definition of bodily injury allows for the possibility of purely emotional harm, without any physical trauma.”)
Circuit has declared in an unpublished opinion that coverage is not limited
to claims by the individual who suffered bodily injury. In Scottsdale
Insurance Company v. National Shooting Sports Foundation, Inc., No. 99-31046
(5th Cir. July 11, 2000), the court rejected Scottsdale’s contention that
there was no coverage for claims against gun manufacturers by municipalities
because the claims were not by the individuals who had suffered bodily
injury. “We reject Scottsdale’s contention that the ‘because of bodily
injury’ provision requires that the plaintiff seeking damages be the one
who suffered the bodily injury...Scottsdale could have expressly limited
coverage to ‘claims for damages incurred because of bodily injury to the
plaintiff seeking damages’ but it did not.”
BREACH OF POLICY CONDITIONS
courts are divided as to whether prejudice is required to defeat coverage
for late notice. The Louisiana Court of Appeals has ruled on several
occasions that insurers must prove prejudice. See Gully & Associates,
Inc. v. Wausau Ins. Co., 536 So.2d 816 (La. App. 1988); Moskau v. INA,
366 So.2d 1004 (La. App. 1978) and Davis v. Allstate Ins. Co., 272 So.2d
458 (La. Ct. App. 1973). However, the federal courts have consistently
ruled that timely notice is a condition precedent to coverage such that
a breach of this condition bars coverage without regard to questions of
prejudice. Joslyn Mfg. Co. v. Liberty Mut. Ins. Co., 37 F.3d 634
(5th Cir. 1994); Jackson v. Transportation Leasing Co., 893 F.2d 794 (5th
"BROAD FORM COVERAGES"
Court of Appeal has ruled that an employee who sued for retaliatory discharge
and invasion of privacy after failing a drug test had alleged a claim within
"personal injury" portion of the employer's liability coverage. Ellis
v. Transcontinental Ins. Co., 629 So.2d 365 (La. App. 1993).
Circuit has ruled that a Louisiana District Court erred in finding that
a CGL carrier had a duty to defend allegations of negligent misrepresentation
under its “personal injury” coverage. In Hardy v. Hartford Ins. Co.,
No. 99-3099 (5th Cir. January 5, 2001), the court ruled that allegations
that the insured’s conduct had caused “reputational damages” did
not transform the plaintiff’s claim into an action for “defamation, libel
or slander” or any other “offense” within the scope of Hartford’s
“personal injury” coverage.
BURDEN OF PROOF
Louisiana follows the rule that the burden of proof is upon those whose
interest would be served thereby. Gremillion v. Goleman, 316 So.2d
810 (La. App. 1975). Thus, the insured has burden of showing that
its claim is within the scope of coverage. Turner v. W.D. Ewing,
232 So.2d 468, 255 La. 659 (1970("insured") and Bonner v. U.S. Fire Ins.
Co., 494 So.2d 1311 (La. App. 1986). In general, insurers that set
out exclusions as special defenses to coverage claims have the burden of
proving their applicability. Great American Ins. Co. v. Gaspard,
608 So.2d 981 (La. 1992); Garcia v. St. Bernard Parish School Board, 576
So,2d 975 (La. 1991) and Webb v. Zurich Ins. Co., 205 So.2d 398, 251 La.
558 (1967). In Preston v. Granger, 517 So.2d 1125 (La. App. 1988),
the Court of Appeal ruled that the insured had the burden of proving insanity
to overcome evidence that an exclusion for intentional acts would otherwise
CHOICE OF LAWS
In 1992, Louisiana codified its "conflicts of law" principles. The new code applies to all actions filed after January 1, 1992. Cases filed prior to that date are still subject to the traditional "interest analysis" by which the competing interests of two states are measured to see which has the most substantial relationship under a Second Restatement approach.
Article 3540 of the Louisiana Civil Code provides that “all other issues of conventional obligations are governed by the law expressly chosen, or clearly relied upon by the parties, except to the extent that law contravenes the public policy of the state whose law would otherwise be applicable under Article 3537.”
Article 3537 in turn provides that “except as otherwise provided in this Title, an issue of conventional obligation is governed by the law of the state whose policies would be most seriously impaired if its law were not applied to that issue. That state is determined by evaluating the strength and pertinence of the relevant policies of the involved state in light of (1) the pertinent contacts of each state to the parties and the transaction, including the place of negotiation, formation and performance of the contract, the location of the object of the contract, and the place of domicile, habitual residence, or business of the parties; (2) the nature, type and purpose of the contract; and (3) the policies referred to in Article 3515, as well as the policies of facilitating the orderly planning of transactions, of promoting multi-state commercial intercourse, and of protecting one party from undue imposition by the other.” See Roberts v. Energy Development Corporation, No. 99-31150 (5th Cir. December 13, 2000) and Shell Oil Co. v. Hollywood Marine, Inc., 1997 La. App. LEXIS 2426 (La. App. October 15, 1997).
Louisiana has adopted a hybrid of the governmental interest model and the "most significant relationship" test set forth in the Restatement (Second), Conflicts of Laws. Jagers v. Royal Ind Co., 276 So.2d 309, 311 (La. 1973); Fallon v. Superior Chaircraft Corp., 884 F.2d 229 (5th Cir. 1989) and Sandefer v. Oil and Gas Co. v. AIG Oil Rig of Texas, Inc., 846 F.2d 319, 322 (5th Cir. 1988).
Generally, however, Louisiana courts will look to the place where the insurance policy was executed. Partin v. Dolby, 652 So.2d 670, 674 (La. App. 1st Cir. 1995); Holcomb v. Universal Ins. Co., 640 So.2d 718, 722 (La. App.3d Cir. 1994), writ denied, 644 So.2d 643 (1994). See also Resure, Inc. v. Chemical Distributors, Inc., 927 F.Supp. 190 (M.D. La. 1996)(rejecting place of accident approach in environmental insurance coverage dispute).
Civil Code articles 3537 and 3515 provide that "an issue of conventional
obligations is governed by the law of the state whose policies would be
most seriously impaired if its law were not applied to that issue.
That state is determined by evaluating the strength and pertinence of the
relevant policies of the involved states in the light of (1) the pertinent
contacts of each state to the parties in the transaction, including the
place of negotiation, formation, and performance of the contract, the location
of the object of the contract, and the place of domicile, habitual residence
or business of the parties; (2) the nature, type and purpose of the contract;
and (3) the policies referred to in Article 3515, as well as the policies
of facilitating the orderly planning of transactions, of promoting multi-state
commercial intercourse, and of protecting one party from undue imposition
by the other.
"CLAIMS MADE" ISSUES
"Claims made" requirements limiting coverage to claims received by the insured and reported to its E&O carrier during a stated period are not per se invalid as being contrary to public policy. Livingston Parish School Board v. Fireman's Fund Ins. Co., 282 So.2d 478 (La. 1973).
to give notice of a claim during the policy period eliminates coverage
without regard to prejudice. Case v. Louisiana Medical Mut. Ins. Co., 624
So.2d 1285 (La. App. 1993); Brumfield v. Shelton, C.A.No. 87-4180 (E.D.
La. September 14, 1993). Further, in FDIC v. Caplan, C.A. No. 92-2189
(W.D. La. December 3, 1993), the District Court ruled that the absence
of any claim during the policy period precluded a third party's claim under
Louisiana's "direct action" statute.
CONFLICTS OF INTEREST
Where a conflict
of interests exists, the insurer must obtain independent counsel to represent
its insured. Dugas Pest Control of Batton Rouge v. Mutual Fire, Marine
& Inland Ins. Co., 504 So.2d 1051, 1054 (La. App. 1987). In Dugas,
the Court of Appeals held that "if the insurer chooses to represent the
insured but deny coverage it must employ separate counsel."
In T.H.E. Ins. Co. v. Larsen Intermodal Services, Inc., No. 00-30392 (5th
Cir. March 2, 2001), the Fifth Circuit ruled that an insurer’s failure
to obtain separate counsel in such circumstances made the insurer liable
for the attorney fees and costs of the insured's defens but did not vitiate
the insurer's reservation of rights.
Costs that a policyholder incurred in responding to a directive to cease further infringement of the plaintiff’s trademark have been held not to be “damages.” Certain Underwriter’s of Lloyd’s v. Two-Up, Inc., d/b/a Swigs, No. 99-2726 (E.D. La. March 3, 2000).
On the other
hand, a federal district court has ruled that Louisiana "has long treated
clean-up costs as part of the general measure of damages" available under
its laws. GAF Corp. v. Continental Cas. Co., No. 87-3272 (E.D. La.
Jan. 12, 1989).
DECLARATORY JUDGMENT ACTIONS
An insured that brings suit to recover a claim for which its insurer has wrongfully withheld payment for more than 30 days can recover its attorneys fees under LSA-R.S. 22:657 if the refusal to pay "is clearly arbitrary and capricious." Wyvill v. State Employees Group Benefits, 558 So.2d 1274 (La. App. 1990).
A federal district court has ruled that the declaratory Judgment action gives a court discretion to enter further relief extending an insurer’s defense obligation to subsequent suits filed after the court’s original order confirming a duty to defend. Scottsdale Insurance Company v. National Shooting Sports Foundation, Inc., 2000 U.S. Dist. LEXIS 16610 (E.D. La. November 6, 2000).
The Louisiana Supreme Court has ruled that an insurer's duty to defend does not extend to reimbursing its insured for pursuing its coverage claims unless expressly provided for by contract. Steptore v. Masco Construction Co., Inc., 643 So.2d 1213, 1218 (La. 1994). More recently, in Tillman v. Custom Aggregate, 686 So.2d 118 (La. App 1st Cir. 1996), the Court of Appeal refused to create an exception to this general rule where the fees charged to one insurer were incurred by the policyholder in an effort to compel coverage from other insurers, even though the involvement of the other insurers would arguably benefit the insurer that had already agreed to provide a defense.
Attorneys' fees incurred by a policyholder in responding to a declaratory judgment action commenced by the insurer have been held not to be "reasonable expenses incurred" at the request of the insurer within the Supplementary Payments provision of standard general liability policies. Standard Surety & Casualty Co. of New York v. Perrin, 19 So.2d 783, 787 (La. App. 1944).
Court of Appeal has ruled that a partial summary judgment requiring an
insurer to undertake the defense of its policyholder is a final appealable
judgment. Orleans Parish School Board v. Scheyd, Inc., 673 So.2d 274 (La.
DIRECT ACTION CLAIMS
Louisiana is a direct action jurisdiction. La. Rev. Stat. Ann. §22:655 permits third party claimants to proceed directly against an insurer to claim the proceeds or benefits of any policy issued or delivered in Louisiana. However, the statute may only be applied if the policy was written or delivered in Louisiana or the accident occurred there. Continental Ins. Co. v. Jantran, Inc., 906 F.Supp. 362 (E.D. La. 1995); Esteve v. Allstate Ins. Co., 351 So.2d 177 (La. 1977). The history and origins of the Louisiana Direct Action Statute are addressed in detail in Judge Haik's January 15, 1997 opinion in In Re Combustion, Inc., 1997 U.S. Dist. LEXIS 9365 (W.D. La. January 15, 1997).
Since the third party claimant's rights vest at the time of injury, insurers may not raise as a defense conduct of the insured thereafter, such as untimely notice. Auster Oil & Gas, Inc. v. Stream, 891 F.2d 570, 577 (5th Cir. 1990) and Williams v. Lemaire, 655 So.2d 765 (La. app. 1995), writ denied, 660 So.2d 481 (La. 1995).
were extended to the issue of notice in a "claims made" policy in Murray
v. City of Bunkie, 1996 WL 638070 (La. App. 3 Cir. November 6, 1996).
court refused to permit discovery in American Medical Systems, Inc. v.
National Union Fire Insurance Company of Pittsburgh, No. 98-1788 (E.D.
La. September 29, 1999) on the basis that this information was irrelevant.
in American Medical Systems, Inc. v. National Union Fire Insurance Company
of Pittsburgh, No. 98-1788 (E.D. La. September 29, 1999).
DUTY TO DEFEND
Under Louisiana law, a liability insurer's duty to defend is determined by the allegations contained in the lawsuit filed against its insured, not by the insurer's interpretation of what liabilities may be covered under the policy. Michelotti v. Karno, 542 So.2d 734, 736 (La. App. 1989). The insurer is obligated to provide a defense unless the petition unambiguously excludes coverage and must defend where the pleadings allege a covered set of facts, even if the actual facts would not support such a claim. American Home Assurance Co. v. Czarniecki, 255 La. 251, 230 So.2d 253 (1969); Cute-Togs of New Orleans v. Louisiana Health Serv. & Indem. Co., 386 So.2d 87 (La. 1980). Further, a duty to defend may exist even if the legal theory on which the plaintiff's claim rests is insupportable. Ellis v. Transcontinental Ins. Co., 629 So.2d 365 (La. App. 1993).
The duty to defend has been held to extend to an obligation to appeal where reasonable grounds for an appeal exist. Reichert v. Continental Ins. Co., 290 So.2d 730, 734 (La. Ct. App. 1974).
The duty to defend does not arise until the insurer receives notice from its policyholder. Gully & Associates, Inc. v. Wausau Ins. Co., 536 So.2d 816 (La. App. 1988)(insurer relieved of any obligation to reimburse insured for pre-notice defense costs). Accord, Cobb v. Empire Fire & Marine Ins. Co., 488 So.2d 340 (La. App. 1986) and Payton v. St. John, 188 So.2d 347 (La. App. 1966). However, the Court of Appeals has also held that pre-tender defense costs may still be recoverable unless the insurer can show prejudice. Rovira v. LaGoDa, Inc., 551 So.2d 790, 794 (La. App. 1989), writ denied (La. 1990).
An insurer’s duty to defend does not extend to reimbursing a policyholder for legal fees incurring in seeking to compel coverage from other insurers. Vaugn v. Franklin, No. 2000 CA 0291 (La. App. March 28, 2001). See also Steptore v. Masco Construction Company, 643 So.2d 1213 (La. 1994) and Cajun Trucking, Inc. v. USF&G, 99-CA-1094 (La. App. June 23, 2000).
requires that liability insurers pay interest on policy limits from the
date of judicial demand forward. While insurers may limit or extend
their interest liability through the use of Supplementary Payments clauses.
Such clauses ordinarily only provide for payments beyond policy limits
for interest accruing after a judgment has entered. However, the
Court of Appeals ruled in Widdon v. Hutchinson, 668 So.2d 1368 (La. App.
1996) that an Allstate policy that paid "interest accruing on damages awarded"
covered all interest accruing on the entire amount of an award in excess
of limits, not just post-judgment interest.
In Tate v. Charles Aguillard Ins. & Real Estate, Inc., 508 So. 2d 1371, 1375 (La. 1987), the Louisiana Supreme Court held that "waiver may apply to any provision of an insurance contract under which the insurer knowingly and voluntarily elects to relinquish his right, power or privilege to avoid liability, even though the effect may bring within coverage risks originally excluded or not covered." The burden of proving waiver is on the party asserting it. Id. Louisiana courts apply waiver principles stringently to "uphold the prohibition against conflicts of interest between the insurer and the insured . . . ." Steptore, 643 So. 2d at 1216. Accordingly, the Louisiana supreme court held in Steptore that the scope of coverage under an insurance policy could be expanded by waiver "when an insurer, with knowledge of facts indicating noncoverage under the insurance policy, assumes or continues the insured's defense without obtaining a nonwaiver agreement to reserve its coverage defense . . . ." Id.
Delay in raising
a coverage defense will not create an estoppel absent proof of prejudice
to the insured. Gulf Fleet Marine Operations, Inc.v. Wartsila Power, Inc.,
797 F.2d 257 (5th Cir. 1986). An insurer's initial miscommunication
with respect to whether its policy applied did not estop it from denying
coverage in the absence of reasonable reliance or detriment to the insured.
Case v. Louisiana Medical Mut. Ins. Co., 629 So.2d 365 (La. App. 1993).
On the other hand, the Appeals Court ruled that if an insurer sets forth
specific coverage defenses in its denial letter, it will be estopped to
rely on other defenses later on. Goodwin v. Federal Mutual
Ins. Co., 180 So. 662, 666 (La. App. 1938).
Louisiana courts resolve the "drop down" issue based on the particular excess provisions involved. Robichaux v. Randolph, 563 So.2d 221 (La. 1990) and Kelly v. Weil, 563 So.2d 226 (La. 1990). In general, "drop down" may be required if the policies are written excess of "collectible" or "recoverable" underlying coverage but will not occur if it is excess of stated dollar amounts. Lumar Marine, Inc. v. INA, 910 F.2d 1267 (5th Cir. 1990); INA v. West of England Shipowners, 1995 WL 421842 (5th Cir. July 13, 1995). In Louisiana Ins. Guaranty Assoc. v. Interstate Fire & Cas. Co., 630 So.2d 759 (La. 1994), the Louisiana Supreme Court ruled that the absence of explicit language governing insolvency claims did not require an excess insurer to drop down as long as the obligations of the excess carriers were not contingent on the "collectibility" of the primary insurance.
The state Court of Appeals ruled in Zen-Noh Grain Corporation v. Louisiana Insurance Guarantee Association, No. 00-CA-1455 (La. App. December 27, 2000) that the insured’s action should be dismissed as it had not exhausted all other available primary insurance before seeking coverage from the guarantee fund.
Court of Louisiana has ruled that primary insurers do not owe any duty
of good faith to excess carriers. Great Southwest Fire Ins. Co. v. CNA,
557 So.2d 966 (La. 1990) and Gibbs v. Liberty Mutual Ins. Co., 557 So.2d
972 (La. 1990). An earlier federal district court decision had found
that an excess insurer may sue the primary carrier for negligently failing
to settle a claim within the policy limits to the same extent that the
insured could have. See National Union Fire Ins. Co.
v. Liberty Mut. Ins. Co., 696 F.Supp. 1099 (E.D. La. 1988).
A state trial
court has declined to apply the doctrine to a pollution case. Norfolk Southern
Corp. v. California Union Ins. Co., No. 410-025
(La. Dist. Ct. September 1, 1998).
NUMBER OF OCCURRENCES
Louisiana courts have construed exposures distinguishable in time and space to be separate occurrences. Thus, for instance, one trial court held that various asbestos personal injury suits by separate injuries relating to separate exposures to asbestos cannot all be aggregated as a single "occurrence" based upon the fact that the claims are all based upon the insured's alleged failure to furnish a safe workplace. Cole v. Celotex, 588 So.2d 376 (La. App. 1991), aff'd, 599 So.2d 1058 (La. 1992).
Similarly, silicosis exposures at different job sites were found to involve a series of "occurrences" in successive policy years. Ducre v. Mine Safety Appliances Co., 645 F.Supp. 708 (E.D. La. 1986), aff'd, 833 F.2d 588 (5th Cir. 1987); see also Houston v. Avondale Shipyards, Inc., 506 So.2d 149 (La. Ct. App. 1987)(same), writ denied, 512 So.2d 460 (La. 1987). See also Society of Roman Catholic Diocese of Lafayette v. Interstate Fire & Cas. Co., 26 F.3d 1359, 1366 (5th Cir. 1994)(allegations that pedophilic priests abused 31 children over a period of several years were held to constitute a separate "occurrence" for each child in each policy period in which a new act of molestation had occurred). However, the court ruled that the “occurrence” limit under a multi-year policy only applied once and was not triggered separately for each annual policy period.
In Reynolds v. Scottsdale Ins. Co., 1995 U.S. Dist. LEXIS 589 (E.D. La. January 18, 1995), the District Court ruled that four residents who suffered carbon monoxide poisoning over a 24 hour period were each a separate "occurrence" since each was "damaged" in a different way. Later, in Exxon Corp. v. St. Paul Fire & Marine Ins. Co., 1996 U.S. Dist. LEXIS 17278 (E.D. La. November 15, 1996), aff'd, 129 F.3d 781 (5th Cir. 1997) the court ruled that workers who were exposed to hazardous materials in cargo that was being transported and unloaded on a vessel presented multiple "occurrences" since they could not be said to all involve the consequences of a single, identifiable event.
Separate law suits involving a single boating accident were held to involve a single "occurrence" in Lantier v. Aetna Cas. & Sur. Co., 614 So.2d 1346 (La. App. 1993).
Two car collisions that occurred fifteen minutes apart were held to arise out of a single "occurrence" where both were caused by smoke from a "controlled burn" that the insured was conducting in a forest adjacent to the highway. Miley v. Continental Ins. Co., 645 So.2d 1166 (La. App. 1994).
buses overturned in the same rain storm, each was found to be a separate
"occurrence" since the accidents were caused in large part by the independent
acts of negligence of each bus driver. Nora v. Grayline Motor
Tours, 499 So.2d 401 (La. App. 1986).
“Other insurance” causes only apply to indemnity, not the allocation of
defense between multiple insurers. Great Southwest Fire Insurance
Company v. CNA Insurance Company, 557 So.2d 966 (La. 1990).
As yet, the Louisiana Supreme Court has not interpreted the meaning or scope of the "sudden and accidental"-type pollution exclusion. However, in South Central Bell Telephone Co. v. Ka-Jon Food Stores, 637 So.2d 133 (La. 1994), opinion vacated 642 So.2d 1268 (La. 1994) the court issued a broad ruling criticizing instances in which insurers had "exploited" various types of exclusions in non-environmental cases. The court ruled that (1) if pollution resulted from the insured's knowing and intentional acts, even if harm was not thereby intended, the exclusion bars coverage for both clean up costs and private claims for bodily injury or property damage. (2) If the insured's conduct was merely negligent, the exclusion bars coverage for clean up costs but not private claims for bodily injury or property damage. (3) The exclusion does not apply at all to "non-environmental" accidents, involving incidental spills and leaks that arise out of the insured's premises or operations and which are unrelated to waste disposal or pollution generating activity. In so ruling, the court overturned a Court of Appeals decision that had taken issue with West, holding that the exclusion defeated for the phone company's claim for the cost of cleaning up oil contamination that had inadvertently leaked from the insured's property. See South Central Bell Telephone Company v. KA-John Food Stores of Louisiana, 626 So.2d 1223 (La. App. 1993). However, the Supreme Court agreed to reconsider its ruling and vacated the decision after the insurer claimed that its policy, in fact, did not contain an absolute exclusion. The case was remanded for further findings by the trial court. Curiously, the Supreme Court ruled that if the policy was found to contain an "absolute" exclusion, the trial court should rule on its merits without reference to the court's earlier May 28 analysis.
Supreme Court’s action, the "absolute" pollution exclusion continued to
be a subject of debate between insurers and state regulators. On June 4,
1997, the Insurance Commissioner issued a letter warning liability
insurers that they would face administrative action and penalties if they
continue to apply absolute pollution exclusions to asbestos, lead poisoning
and other cases that do not involve industrial environmental contamination.
Commissioner Brown noted with approval that ISO had issued three modified
pollution exclusions on April 9, 1997 that set forth narrower bases on
which pollution coverage may be denied. In his June 4 warning, Commissioner
Brown advised insurers the absolute exclusion should not be applied unless
(1) the claim involves an accident which caused an environmentally significant
discharge of pollutants resulting in environmental damage; (2) the insured's
regular business activities place it in the category of an "intentional
active industrial polluter"; (3) the claim does not involve an injury alleged
to have been caused by a product being used in accordance with its intended
purpose; and (4) the claim does not involve lead or asbestos exposures.
In 1999, the Louisiana Supreme Court addressed the exclusion anew, this time in the context of a “total” pollution exclusion. Refusing to be bound by the earlier dicta in Ka-Jon, it declared in Ducote v. Koch Pipeline Co., 730 So.2d 288 (La. 1999) that an ammonia discharge caused by damage to a pipeline by the insured contractor plainly and unambiguously arose out of a discharge of pollutants subject to a total pollution exclusion. In rejecting the Appeals Court’s declaration that such exclusions only apply to “active industrial polluters” the court refused to be bound by its earlier (since vacated) analysis of such exclusions in Ka-Jon and instead ruled that unambiguous contracts must be enforced as written, particularly as a contrary analysis would skew the availability of insurance for others. Two dissenting justices argued that the court should stand by Ka-Jon and preclude the applicability of such exclusions to fortuitous accidents or incidental business risks. In a separate dissent, Justice Kimball argued that exclusion was overbroad as drafted and that the pure literal reading espoused by the majority would lead to absurd consequences.
Ducote proved to be short lived. On December 19, 2000, the Supreme Court ruled 4-3 that it did not properly reflect Lousiana law and declared instead that such exclusions are only meant to apply to “active polluters.” In Doerr v. Mobil Oil Corporation, 774 So.2d 119 (La. 2000), the court was asked to consider a ruling of the Appeals Court that the pollution exclusion precluded coverage for claims against a municipality whose residents claimed personal injuries as a result of ingesting contaminated water that had entered the municipal water supply due to an oil spill from a Mobil refinery on the Mississippi River. The majority concluded that that “there is no history in the development of this exclusion to suggest that it was ever intended to apply to anyone other than an active polluter of the environment.” Whereas Ducote had declared that there should be no distinction between “active” and negligent polluters, the Doerr court ruled that such a distinction is mandated by the drafting history of the exclusion and the regulatory intent of the Louisiana Insurance Commissioner. The court therefore ruled that “in light of the origin of pollution exclusions, as well as the ambiguous nature and absurd consequences which attend a strict reading of these provisions, we now find that the total pollution exclusion was neither designed nor intended to be read strictly to exclude coverage for all interactions with irritants or contaminants of any kind.” Instead, we find that “it is appropriate to construe a pollution exclusion in light of its general purpose, which is to exclude coverage for environmental pollution and, under such interpretation, the clause will not be applied to all contact with substances that may be classified as pollutants.” Rather, the court stated that “the applicability of a total pollution exclusion in any given case must necessarily turn on several considerations:
1. Whether the insured is a “polluter” within the meaning of the exclusion.
2. Whether the injury-causing substance is a “pollutant” within the meaning of the exclusion.
3. Whether there was a “discharge, dispersal, seepage, migration, release or escape” of a pollutant by the insured within the meaning of the exclusion.
The court declared that the determination of whether an insured is a “polluter” is a fact-based conclusion that must be evaluated based upon the nature of the insurance business, whether that type of risk presents a risk of pollution, whether the insured has a separate policy covering the disputed claim, whether the insured should have known that a separate policy covering pollution would be necessary for the insured business, who the insurer typically insures, any other claims made under the policy, and other facts that the trial court may deem relevant.
Whether the injury-causing substance is a “pollutant” is similarly fact based and must reflect the nature of the injury-causing substance, its typical usage, the quantity of the discharge, whether the substance was being used for its intended purpose when the injury took place, whether the substance is one that would be viewed as a pollutant as the term is generally understood, and any other factor the trier of fact deems relevant to that conclusion.
Finally, the court stated that the trier of fact should consider “whether the pollutant was intentionally or negligently discharged, the amount of the injury-causing substance discharged, whether the actions of the alleged polluter were active or passive and other relevant facts.”
WhileDoerr was still pending, the Louisiana Insurance Department announced in June 2000 that it planned to implement a regulation invoking the restrictions that the Commissioner had sought to impose in June 1997 restricting the scope of the absolute pollution exclusion to environmental damage and cases where the insured was an “intentional active industrial polluter.” Under proposed Regulation 73, personal lines insurers may only exclude claims for cleanup costs or for damages “arising out of the illegal disposal of pollutants.” Commercial lines’ risks would only face such exclusions if the insured engages in “a business pursuit which presents a risk of loss arising from the use of products which are toxic to human beings.” In these circumstances, the insured must sign off on the exclusion. Moreover, a total pollution exclusion may only be used in an insurance policy if the insured is required either to (a) provide proof of financial responsibility pursuant to federal environmental statutes or (b) engages in activities which require the issuance of a discharge permit, disposal permit or hazardous waste transportation permit from a federal, state or environmental agency. In these circumstances, the exclusion is limited to those losses which arise solely and directly form the activities that the insured authorized under the permit.
In light of Doerr, the Court of Appeals later ruled in Gaylord Container Corporation v. CNA Insurance Companies, 2001 La. App. LEXIS 818 (1st Cir. April 3, 2001) that “when a fortuitous event such as an explosion occurs, and that event incidentally involves a chemical agent, the absolute pollution exclusion operates to exclude coverage for environmental damage only.” The court affirmed the trial court’s ruling that policies that lacked a “hostile fire” exception were reformed to include coverage.
A U.S. District Court ruled in Jenkins v. Lawrence, 2000 WL 1751613 (E.D. La. November 28, 2000) that an exclusion for “seepage, pollution and contamination” precludes coverage for allegations that a maintenance worker suffered injury by being exposed to benzine while wading thorough oil in a marsh to locate the source of an oil leak on the insured’s property. The court declared that the exclusion not only applied to claims of this sort but that the “buy-back” endorsement had not been satisfied inasmuch as the insured had failed to give notice within 30 days of the original occurrence. Following the Supreme Court’s ruling in Doerr, however, the court agreed to reconsider its ruling. Jenkins v. Bill Laurence, Inc., 2001 U.S. Dist. LEXIS 1792 (E.D. La. February 16, 2001).
In Hinds v. Clean Land Air Water Corp., No. 96-1058 (La. App. April 30, 1997), the Third Circuit of the Louisiana Court of Appeals rejected an argument that the exclusion was either ambiguous or inapplicable to claims based upon the mere "disposal" or "storage" of waste materials. Rather, consistent with the Tenth Circuit's ruling in Broderick, the court ruled that it is the initial disposal of wastes to which such terms apply.
As yet, Louisiana
appellate courts have not construed the meaning of "sudden and accidental."
In In Re Combustion, Inc., 960 F.Supp. 1076 (W.D. La. 1997), a federal
district court declared that "sudden" was ambiguous as it could be interpreted
as meaning both "unexpected" and "all at once." An older decision
of the Louisiana Court of Appeal clearly recognized that "sudden" has a
temporal meaning, however. In Foreman v. Jordan, 131 So.2d 796, 808
(La. App. 1961) the court opined that the term "accident" refers to "some
sudden and unexpected event taking place without expectation, upon the
instant, rather than something which continues, progresses or develops.
The Court of Appeals ruled in Matheny v. Ludwig, 1999 La. App. LEXIS 2468 (La. App. September 22, 1999) that an insurer had no duty to indemnify its insured for damages owed to a neighboring property owner who had complained of foul odors and waste grease that had been released from the insured’s facility. In light of the Louisiana Supreme Court’s 1999 ruling in Ducote, the Court of Appeals held that there was no legal or factual basis for the trial court’s determination that the waste grease was not a “pollutant.” Even though the State Department of Environmental Quality had not classified the waste grease as a “hazardous substance”, it was referred to in trial testimony as a pollutant and a possible source of injury to vegetation and adjoining bodies of water. Further, the policy itself defines “pollutant” in part as including “waste.” Nevertheless, the court ruled that FFIC had a duty to defend since the discharges were a one-time, accidental event and did not involve an “active industrial polluter.”
In Tippett v. Padre Refining Company, 2000 La. App. LEXIS 2874 (La. App. November 15, 2000), the Court of Appeals ruled 2-1 that the exclusion precluded coverage for the cost of cleaning up contamination from an accidental spill at an oil refinery notwithstanding the argument of a dissenting justice that this interpretation precluded coverage for a crucial riske. The majority distinguished Ka-Jon, noting that the policy in question had not been a renewal, nor was there any issue of the insured’s reasonable expectations of coverage, particularly as the need for separate insurance coverage for pollution liabilities should have been “self-evident” to a refinery operator.
A federal district court declined to retain jurisdiction over a case involving property owners’ exposure to raw sewage, noting questions of fact with respect to whether sewage is a “waste” within the scope of a total pollution exclusion. First Financial Insurance Company v. Delta Contracting Enterprises, Inc., 1999 U.S. Dist. LEXIS 17417 (E.D. La. November 9, 1999).
was held to bar any duty to defend or indemnify the operator of a natural
gas drilling platform for claims arising out of an explosion that killed
a pipeline worker. Travelers Ins. Group, Inc. v. O.C.S., Inc., 914
F.Supp. 126 (E.D. La. 1996). Similarly, two federal courts have upheld
the exclusion in cases involving personal injuries resulting from a chemical
explosion, ruling that its scope is not limited to contamination that is
the direct result of the insured's conduct. Resure, Inc. v. Chemical
Distributors, Inc., 927 F.Supp. 190 (M.D. La. 1996) and Uniroyal Chemical
Co. v. Deltech Corp., No. 93-998 (M.D. La. December 27, 1995).
In Sandbom v. BASF Wyandotte, 674 So.2d 349 (La. App. April 30, 1996), the Court of Appeal refused to apply the exclusion to a claim for personal injuries that an employee suffered when exposed to chemicals while cleaning a reservoir storage tank at BASF's chemical facility. The court ruled that there had been no discharge, dispersal, release or escape of pollutants since Sandbom was injured in the area where the chemicals were contained. Even though the definition of "pollution hazard" in the Twin City policy contained no requirement that there be a discharge, dispersal, release or escape, the court found that such terms were an implied part of the dictionary definition of "pollution."
A U.S. District
Court decision interpreted the exclusion as only applying to discharges
from the premises of "named insureds." Chevron Chemical Co. v. Factory
Compressor Parts, C.A. No. 93-0160 (E.D. La. August 23, 1993)(exclusion
inapplicable to claims involving loss at additional insured's premises).
Although public policy prohibits automobile liability insurers from restricting statutorily mandated coverages, the Supreme Court declared in Hickey v. Centenary Oyster House, 1998 WL 727424 (La. October 20, 1998) that an assault and battery exclusion in a general liability policy issued to a private security firm was not in conflict with the statutory requirement that security firms maintain liability insurance. The court distinguished this coverage from mandatory automobile insurance, noting that nothing in the security firm statute mandated the specific elements of coverage and that the statutory provisions were directed to policyholders, not insurers.
Louisiana does not permit the award of punitive damages in civil actions. Pittman v. Kaiser Aluminum & Chem. Corp., 559 So.2d 879 (La. Ct. App.), writ denied (La. 1990).
Where such awards are handed down, however, courts have permitted coverage. Beard v. Allstate Ins. Co., 534 So.2d 52 (La. App. 1988). Thus, Louisiana courts have declared that awards of punitive damages for “grossly negligent” conduct fall within the scope of “all sums” coverage under liability insurance policies. Sharpe v. Daigre, 555 So.2d 1361 (La. 1990) and Creech v. Aetna Casualty & Surety Company, 516 So.2d 1168 (La. App. 1987).
for punitive damages was upheld in Taylor v. Lumar, 612 So.2d 798 (La.
STANDARDS FOR POLICY INTERPRETATION
Insurance policies are to be interpreted to give practical effect to all of the parts of the contract, according to each the sense that results from the entire agreement and so as to avoid neutralizing or ignoring any of them or treating them as surplusage. Lambert v. Maryland Casualty Co., 418 S.2d 553, 559 (La. 1982).
Louisiana has adopted the "reasonable expectations" doctrine. Further, ambiguities in a policy will generally be interpreted in favor of coverage. However, there are limitations to both doctrines.
Ambiguous terms will not be interpreted against the insurer where the language in question was supplied by the insured or its agent. Halperin v. Lexington Ins. Co., 558 F.Supp. 1280, 1283-84 (E.D. La. 1982), aff'd, 715 F.2d 191 (5th Cir. 1983). Similarly, in Industrial Risk Insurers v. New Orleans Public Service, 666 F.Supp. 874, 881 (E.D. La. 1987), the court ruled that "contra proferentum" was inapplicable where "insured, a large municipality was represented by professionals, including the insurance advisory committee (whose members were sophisticated in matters of insurance), the city attorney and an experienced insurance agent. The city stood on equal footing with its insurers and had significant input in negotiating the terms of the policy." Accord Ins. Co. of North America v. John J. Bordlee Contractors, 543 F.Supp. 597, 602 (E.D. La. 1982); MGIC Indemn. Corp v. Central Bank, 838 F.2d 1382, 1387 (5th Cir. 1988); FDIC v. Barham, 794 F.Supp. 187, 193 (W.D. La. 1991), aff'd, 995 F.2d 600 (5th Cir. 1993).
The Louisiana Court of Appeal has ruled in Carrier v. Allstate Ins. Co., 1997 WL 694621 (La. App. November 7, 1997), that Allstate's failure to obtain state regulatory approval for an endorsement deleting coverage under an automobile policy for rental liabilities did not automatically invalidate the exclusion or render it unenforceable if it otherwise complied with all other pertinent provisions of the Insurance Code. Whereas the Insurance Commissioner could exercise its authority under LSA R.S.22:620 to disapprove the policy issued, delivered or to be used Louisiana, the policy could be used up until such time of this approval as the Commissioner's action would only have prospective effect.
have rejected these theories in asbestos cases as representing a radical
and unwarranted abandonment of traditional tort principles. Thompson v.
Johns-Manville Sales Corp., 714 F.2d 581 (5th Cir. 1983), cert. denied,
465 U.S. 1102 (1984); see also Bateman v. Johns-Manville Sales Corp., 781
F.2d 1132 (5th Cir. 1986) and Hannon v. Waterman S.S. Corp., 567 F.Supp.
90 (E.D. La. 1983). Market share theories of liability were also
rejected for lead poisoning claims against paint manufacturers in Jefferson
v. Lead Industries Association, 930 F. Supp. 241 (E.D. La. 1996), affirm’d
106 F.3d 1245 (5th Cir. 1997).
TRIGGER OF COVERAGE
Louisiana law is unsettled with respect to the trigger of coverage for latent injury claims. It is apparent that the trigger is the date of injury, not the time of the insured’s original negligent conduct. FDIC v. Barham, 794 F.Supp. 187, 193 (W.D. La. 1991), aff'd, 995 F.2d 600 (5th Cir. 1993) and Alberti v. Welco Manufacturing Co., 542 So.2d 964 (La. App. 1990)(installation of sheetrock mud during policy period did not trigger coverage since subsequent chemical reaction that caused injury to surrounding premises occurred after policy had expired).
Furthermore, in cases where the insured's negligence did not actually cause damage until a time after the policy period, the Court of Appeals has twice ruled that a “manifestation” trigger is appropriate. James Pest Control, Inc. v. Scottsdale Insurance Company, 2000 La. App. LEXIS 1717 (La. App. June 27, 2000)(termite damage) and Korossy v. Sunrise Homes, Inc., 653 So.2d 1215 (La. App. 1995)(construction defect claims). See also Blue Streak Indus. v. N.L. Indus., 650 F.Supp. 733 (E.D. La. 1986)(because alleged "microtraumas," which allegedly resulted from the insured's negligence, did not cause any discernible injury until the gears actually failed, which was after the policy period, there was no coverage under the policy). But see Orleans Parish School Board v. Scheyd, Inc., 673 So.2d 274 (La. App. 1996)(rejecting "manifestation"-only trigger for construction claims, ruling that coverage is triggered whenever the insured's actions caused third party property damage, whether noticeable at the time or not).
In contrast to these cases, however, Louisiana courts have sometimes adopted an “exposure” for toxic tort claims involving injuries such as asbestosis or silicosis that are deemed to be cumulative and progressive. See Cole v. Celotex, 588 So.2d 376 (La. App. 1991), aff'd, 599 So.2d 1058 (La. 1992) (asbestos claims) In such cases court have pro-rated coverage among all insurers providing coverage during the "injurious exposure" period. Porter v. American Optical Corp., 641 F.2d 1128 (5th Cir.) and Ducre v. Executive Officers of Halter Marine, Inc., 752 F.2d 976 (5th Cir. 1985)(silicosis claims) exposure), rehearing denied, 758 F.2d 651 (1985).
A company that merged with the named insured was held entitled to claim coverage in Ducote v. Koch Pipeline Co., LLP, 1998 La. App. LEXIS 388 (La. App. March 6, 1998), rev’d on other grounds (La. 1999).