                              Supreme Court of Louisiana
FOR IMMEDIATE NEWS RELEASE                                         NEWS RELEASE #045


FROM: CLERK OF SUPREME COURT OF LOUISIANA



The Opinions handed down on the 7th day of September, 2016, are as follows:



BY HUGHES, J.:


2015-C -0588      DANIEL  ARCENEAUX,   LOUIS  DAVEREDE,   JR., VIVES LEMMON AND
                  JULES MENESSES, ET AL. v. AMSTAR CORP., AMSTAR SUGAR CORP.,
                  TATE AND LYLE NORTH AMERICAN SUGARS, INC., AND DOMINO SUGAR
                  COMPANY, ET AL. (Parish of St. Bernard)

                  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.

                  KNOLL, J., concurs and assigns reasons.
                  CRICHTON, J., additionally concurs and assigns reasons.
09/07/16



                     SUPREME COURT OF LOUISIANA

                                NO. 2015-C-0588

             DANIEL ARCENEAUX, LOUIS DAVEREDE, JR.,
            VIVES LEMMON AND JULES MENESSES, ET AL.

                                     VERSUS

               AMSTAR CORP., AMSTAR SUGAR CORP.,
           TATE AND LYLE NORTH AMERICAN SUGARS, INC.,
               AND DOMINO SUGAR COMPANY, ET AL.

        ON WRIT OF CERTIORARI TO THE COURT OF APPEAL,
            FOURTH CIRCUIT, PARISH OF ST. BERNARD


HUGHES, J.

      This 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 Arceneaux 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., 2005-0177 (La. App. 4 Cir. 12/14/05), 921 So.2d 189 (“Arceneaux I”);

Arceneaux v. Amstar Corp., 2006-1592 (La. App. 4 Cir. 10/31/07), 969 So.2d 755,

writs denied, 07-2486, 08-0053 (La. 3/24/08), 977 So.2d 952, 953 (“Arceneaux

II”); and Arceneaux v. Amstar Corp., 2010-2329 (La. 7/1/11), 66 So.3d 438

(“Arceneaux III”). 1

       The plaintiffs, approximately 100 in number, allege that they worked at the

refinery during various years ranging from 1941 to 2006. 2 Continental issued eight

general liability policies in effect from March 1, 1963 to March 1, 1978. Each of

the policies contained exclusions for bodily injury to employees of the insured

arising out of the course and scope of employment. However, in the last policy, the

exclusion was deleted by special endorsement effective December 31, 1975. Thus,

there was coverage for bodily injury that occurred from December 31, 1975

through March 1, 1978, a period of twenty-six months. The parties agree that the

1
  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, 66 So.3d at 441. Continental then withdrew its defense under the mistaken belief that none of
the policies it issued provided coverage. Id. at pp. 2-3, 442. Later, Continental agreed to pay
100% of the defense costs and to defend all of the claims going forward under a full reservation
of rights. Id. at pp. 4, 442-43. In Arceneaux III, the issue was whether Continental waived its
policy defenses, including the coverage periods and the employee exclusion, by breaching its
duty to defend. p. 17, 66 So.3d at 450. This court held that Continental did not waive its policy
defenses. Id.
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 refinery between 1941 and 2006.
                                                 2
Barbe and Waguespack actions trigger coverage. The relevant policy language

provides:

      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 “bodily 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 defense, reimbursement of defense

costs expended plus interest, statutory bad faith penalties, and attorney fees.
                                            3
Without offering reasons, on October 3, 2013 the trial court granted American

Sugar’s request for a complete defense going forward, but denied the motion in all

other respects, including the request for past defense costs. The trial court also

designated the judgment as final for purposes of immediate appeal pursuant to

Louisiana Code of Civil Procedure article 1915(B).

       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.,

2014-0271, p. 14 (La. App. 4 Cir. 2/25/15), 161 So.3d 115, 124. The court of

appeal opined that an insurer’s duty to defend arises when the pleadings disclose

even a possibility of liability under the policy, even if some of the claims fall

outside the policy’s coverage. Id. at pp. 6-7, 119-20. The court of appeal

determined that the jurisprudence did not support a deviation from the rule that the

duty to defend is not divisible, even in long latency disease cases. Id. at p. 14, 123-

24. The court of appeal did note, however, that other jurisdictions have adopted the

“more equitable system” of defense cost proration, that the state’s jurisprudence is

“moving in the direction of proration,” and that this case presents an opportunity

for the supreme court to “extend and/or clarify the law on this issue.” Id. at pp. 13-

14, 123-24. Continental sought review with this court, which was granted.

Arceneaux v. Amstar Corp., 2015-0588 (La. 8/28/15), 174 So.3d 1157. 3



3
  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), 169
So.3d 296. Arrant was handed down while Continental’s writ application was pending in this
court. Arrant held that employees’ gradual noise-induced hearing loss caused by exposure to
hazardous levels of noise constituted an “occupational disease” within the meaning of the
Workers’ Compensation Act. Neither Continental nor American Sugar argued that Arrant
foreclosed the need to decide the instant case as Arrant did not address the duty to defend issue
at bar.
                                                 4
Standard of Review

      Appellate courts apply a de novo standard of review in considering lower

court rulings on summary judgment motions. Thus, we use 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, p. 5 (La. 2/22/07), 949 So.2d 1247,

1250 (citing Steptore v. Masco Const. Co., 93-2064, pp. 8-9 (La. 8/18/94), 643

So.2d 1213, 1218). The insurer’s duty to defend is determined by the allegations of

the plaintiff’s petition, and the insurer is obligated to furnish a defense unless the

petition unambiguously excludes coverage. Steptore, p. 8, 643 So.2d at 1218. If,

assuming all allegations of the petition to be true, there would be both coverage

under the policy and liability of the insured to the plaintiff, the insurer must defend

regardless of the outcome of the suit. Id. In short, the duty to defend arises

whenever the pleadings against the insured disclose even a possibility of liability

under the policy. Id. at pp. 8-9, 1218.

      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. 42-43
                                          5
(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; see also Arceneaux, p. 22, 66 So.3d at 453 (“Arceneaux

III”). That indemnification is allocated pro rata is based in large part on

Louisiana’s adoption of the exposure theory in long latency disease cases. Id. at pp.

40-41, 197; see also S. Silica of Louisiana, Inc. v. Louisiana Ins. Guar. Ass’n,

2007-1680, p. 8 (La. 4/8/08), 979 So.2d 460, 466. Long latency occupational

disease cases are sui generis in that a distinct body of jurisprudential law has been

developed which applies solely to them. See Cole v. Celotex Corp., 599 So.2d

1058 (La. 1992). Under the exposure theory, the “occurrence” that triggers

coverage under an insurance policy is the plaintiff’s exposure to harmful

conditions within the policy period. Id. at 1076. Such a theory was adopted to

establish when coverage was triggered in cases that involved diseases when there

is a “lengthy temporal separation between the alleged tortious conduct and the

appearance of injury.” S. Silica, p. 6, 979 So.2d at 465. This approach is based on

the concept that insurers may limit their liability to discrete and finite periods.

Norfolk S., p. 42-43, 859 So.2d at 198. As the Norfolk Southern court explained:

      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

                                          6
with 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 for the entire loss up to the policy

limits. The elected insurer then has the burden of collecting contribution from other

insurers. Under this scheme, defense costs are divided only among the insurance

carriers, even for periods during which there was no coverage in place. The most

significant difference between joint and several allocation and pro rata allocation is

the treatment of uninsured time periods. Owens-Illinois, Inc. v. United Ins. Co.,

650 A.2d 974, 989 (N.J. 1994).

        A leading decision in applying joint and several allocation is Keene Corp. v.

Insurance Co. of North America. 667 F.2d 1034 (D.C. Cir. 1981), cert denied, 455

U.S. 1007 (1982).            In this case, manufacturer Keene Corporation sought

declaratory judgment of the rights and obligations of insurers under comprehensive

general liability policies, specifically to what extent each policy covered Keene’s

liability for asbestos-related diseases. Id. at 1038. The applicable insurance policies

in Keene are substantially similar to the Continental policy at issue in this case. 4


4
  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, 667
F.2d at 1039. The policies in Keene defined bodily injury as “bodily injury, sickness or disease
sustained by any person,” and defined occurrence as “an accident, including injurious exposure
                                                    7
The federal district court held that indemnification and defense costs should be

prorated among the insurers according to the relative extent of exposure during

their respective policy periods and that the insured was liable for its pro rata share

during periods of non-coverage. Id. at 1039. The United States Court of Appeals

for the District of Columbia Circuit reversed. Id. The appellate court in Keene

adopted the continuous trigger theory in long latency disease cases, holding that

each insurer on the risk between exposure to asbestos and manifestation of injury

was liable to the insured, Keene Corporation. Id. at 1041.

       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
       limits, 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


to conditions, which results, during the policy period, in bodily injury . . . neither expected nor
intended from the standpoint of the insured.” Id.

                                                8
has 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., 633 F.2d 1212 (6th Cir. 1980), clarified on reh’g, 657 F.2d 814 (6th Cir.

1981), cert denied, 454 U.S. 1109 (1981).

       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
                                            9
for 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 n. 4. Faced with substantially similar

insurance policies 5 to the policy in the instant matter and the argument that so long

as one insurer had the duty to defend, the insured should not be liable for defense

costs, even during periods of non-coverage, the United States Court of Appeals for

the Sixth Circuit held that defense costs are to be prorated among insurers and the

insured for periods of non-coverage. Id. at 1225. The court reasoned that when

there is no reasonable means of prorating defense costs between covered and non-

covered claims, the insurer must bear the entire cost of defense. Id. at 1224. The

court noted this scenario typically arises in suits brought as the result of a single

accident, when only some of the damages sought are covered under a policy. Id.

However, in the context of asbestos exposure cases and other long latency disease

claims when coverage was triggered under the exposure theory, defense costs can

be “readily apportioned.” Id. at 1224. The court further stated:

         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


5
    The policy language in Forty-Eight Insulations 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, 633 F.2d at 1216.
                                                 10
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. 650 A.2d 974. In detailing the public policy interests presented in its decision,

the court wrote:

        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., 826

A.2d 107, 121 (Conn. 2003). Accordingly, the New Jersey high court rejected the

Keene method of allocation as it reduces the incentive to insure against future risks

and adopted the pro rata method of apportioning defense costs. Owens-Illinois,

Inc., 650 A.2d at 995-96.

        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 &

                                          11
Thomas R. Newman, Handbook on Insurance Coverage Disputes, §6.02(a)(2)

(17th ed. 2014). 6

       We are persuaded by the reasoning presented in Forty-Eight Insulations and

its progeny and adopt the pro rata allocation method for defense costs in the case

before us based on the policy language.

       The duty to defend arises solely under contract. Arceneaux, p. 21, 66 So.3d

at 452 (“Arceneaux III”). It is well-settled that “an insurance policy is a contract

between the parties and should be construed using the general rules of

interpretation of contracts set forth in the Civil Code.” Sims v. Mulhearn Funeral

Home, Inc., 07-0054, p. 7 (La. 5/22/07), 956 So.2d 583, 588-89. According to

those rules, it is the responsibility of the judiciary to determine the common intent

of the parties. The ascertainment of that common intent begins with an

examination of the words of the insurance contract itself. Id. In this case, the words

of the insurance contract at issue are clear and unambiguous. According to the

contract, Continental has “the right and duty to defend any suit against the insured

seeking damages on account of . . . bodily injury.” “Bodily injury” is defined as

“bodily injury, sickness or disease sustained by any person which occurs during

the policy period, including death at any time resulting therefrom.” (Emphasis

added.)

       American Sugar argues that under the terms of the policy 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.

6
  See, e.g., Gulf Chem. & Metallurgical Corp. v. Associated Metals & Minerals Corp., 1 F.3d
365 (5th Cir. 1993); Commercial Union Ins. Co. v. Sepco Corp., 918 F.2d 920 (11th Cir. 1990);
Budd Co. v. Travelers Indem. Co., 820 F.2d 787 (6th Cir. 1987); Am. Med. Sys., Inc. v. Nat’l
Union Fire Ins. Co., 98-1788, slip op. at 19-22, 1999 WL 679664, *11 (E.D. 1999) (Minnesota
law); Dow Chem. Co. v. Associated Indem. Corp., No. 85-CV-10037-BC, slip op. at 12-13, 1991
WL 568033 (E.D. Mich. Dec. 6, 1991); Fireman’s Fund Ins. Cos. v. Ex-Cell-O Corp., 685 F.
Supp. 621, 626 (E.D. Mich. 1987); N. States Power Co. v. Fid. & Cas. Co. of N.Y., 523 N.W.2d
657 (Minn. 1994).
                                               12
      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, 826 A.2d at 121 (Conn. 2003). 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. In addition, the concept of “joint and several” is not a concept that is

currently a part of Louisiana’s tort law. See Milbert v. Answering Bureau, Inc., 13-

002 (La. 6/28/13), 120 So.3d 678, 687-89; see also Denoux v. Vessel Management

Services, Inc., 07-2143 (La. 5/21/08), 983 So.2d 84, 92.

      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, p. 23 (La. 10/1/04), 883 So.2d 932, 947.

Thus, the policy language in this case that supports a pro rata allocation of defense

costs may not appear in another policy, requiring a different result with regard to

responsibility for defense costs. The manner in which defense costs are to be

allocated may need to be determined on a case by case basis, according to the

precise language of the insurance contract at issue.

      Additionally, as recognized by Forty-Eight Insulations and its progeny, the

pro rata allocation scheme is an equitable system, that can be readily used in long

latency disease claims in Louisiana. In Cole, this court adopted the exposure

theory of liability as set out in Forty-Eight Insulations. Cole, 599 So.2d at 1076.

The exposure theory, under which the occurrence that triggers coverage is the

exposure to harmful conditions, provides a clear way to apportion defense costs as

each year of alleged exposure will trigger the insurer’s duty to defend. American
                                         13
Sugar argues that proration of defense costs will result in mini-trials to determine

the exposure periods for each plaintiff. However, because the duty to defend is

determined by consulting the allegations within the petition and the terms of the

insurance policy, no such mini-trials are necessary.

      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 Insulations, 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. 633

F.2d at 1225. To hold otherwise would entitle an insured to receive coverage for a

period in which it did not pay a premium. See Owens-Illinois, Inc., 650 A.2d at 988

(citing Uniroyal, Inc. v. Home Ins. Co., 707 F. Supp. 1368 (E.D.N.Y. 1988)).

Moreover, the joint and several allocation approach provides a disincentive to

insureds to purchase uninterrupted insurance coverage and provides a windfall to

companies that fail to obtain continuous coverage. See Sec. Inc. Co. of Hartford,

826 A.2d at 121. The pro rata allocation method, by contrast, promotes risk

spreading.

      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. 979 So.2d 460. In Southern Silica, an insured obtained policies through

various insurers that were triggered by employees’ alleged exposure to silica. Id. at

p. 2, 462. One of the insurers, Reliance, was declared insolvent and the question

became whether the solvent insurers must first absorb the insolvent insurer’s share

of indemnity and defense costs to the extent of their policy limits before the

insured could claim indemnity and defense costs from the Louisiana Insurance

Guaranty Association. Id. To answer the question, this court reviewed the lower

court’s determination that Act 108 of 2004 was unconstitutional on the basis that it
                                         14
impaired the contract between insured and insurer. Id. at p. 3-4, 463. By 2004 La.

Acts, No. 108, § 1, R.S. 22:1386(A) was amended to provide:

      In the case of a claimant alleging personal injury or death caused by
      exposure to asbestos 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 be read in such a way that it

was not unconstitutional Id. at p. 10, 467. This court reasoned:

      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

                                         15
be 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. 7 Texas Prop. &

Cas. Ins. Guar. Ass’n/Sw. Aggregates, Inc. v. Sw. Aggregates, Inc., 982 S.W.2d

600, 602 (Tex. App. 1998). The court noted that Texas had adopted the joint and

several allocation method in Keene and that each insurer is fully liable to the

insured for defense costs. Id. at 605. The Texas court affirmed the trial court’s

holding that the Guaranty Act required an insured to exhaust its right to a complete

defense under each policy with solvent insurers before the Guaranty Association’s

statutory obligations are triggered. Id. at 616. The difference in outcome in Texas

Property and Southern Silica is underscored by the difference in how each

jurisdiction has decided to allocate defense costs in long latency disease cases.

When each insurer on the risk owes the insured a complete defense, such an

insured cannot seek recovery from the insurance guaranty association until it

exhausts other triggered policies. Where each insurer on the risk owes the insured a

prorated share, an insured may assert a claim against the insurance guaranty

7
 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
       policy 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.


                                              16
association for the insolvent insurer’s pro rata shares after it recovers the pro rata

shares from the solvent insurers. See Sayre v. Ins. Co. of N. Am., 701 A.2d 1311,

1314 (N.J. Super. Ct. App. Div. 1997), superseded by statute, N.J.S.A. 17:30A-5,

as recognized in Farmers Mut. Fire Ins. Co. of Salem v. New Jersey Property-

Liability Ins. Guar. Ass’n, 74 A.3d 860 (N.J. 2013), (holding that the state’s

surplus lines guaranty fund must pay the share that would have been allocated to

the insolvent insurer’s policy up to the statutory limit because of the previous

adoption of pro rata allocation method of indemnity and defense costs). Thus,

while the issues presented in the case at bar differ from those presented in Southern

Silica, the result reached in both is consistent.

      Having concluded that defense costs are 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. 138 N.J. at 996. It

instructed that a “fair method of allocation appears to be one that is related to both

the time on the risk and the degree of risk assumed.” Id. at 995. While the court left

the ultimate formula up to the special master, it noted that to determine the risk

assumed, policy limits and the years of coverage should be factors. Id. at 993-94.

In Sharon Steel Corp. v. Aetna Casualty & Surety Co., the Utah court concluded

that multiplying policy limits by the years of coverage results in a more equitable

allocation of defense costs than proration based on policy limits alone. 931 P.2d

127, 140 (Utah 1997). It noted that taking into account policy limits “affixes the

responsibility of the insurer in proration to the total coverage which that insurer

undertook to provide” and “acknowledges that insurers do not stand on an equal

footing where there are significantly different liability limits.” Id.

      In this case, however, the amount of time an insurer was on the risk would
                                           17
seem 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, 633 F.2d at

1225.

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.




                                        18
09/07/16


                      SUPREME COURT OF LOUISIANA

                                  No. 15-C-0588

              DANIEL ARCENEAUX, LOUIS DAVEREDE, JR.,
             VIVES LEMMON AND JULES MENESSES, ET AL.

                                     VERSUS

               AMSTAR CORP., AMSTAR SUGAR CORP.,
           TATE AND LYLE NORTH AMERICAN SUGARS, INC.,
               AND DOMINO SUGAR COMPANY, ET AL.

KNOLL, J., concurs in the result.

      With 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 rata

sharing of defense costs involves a pure contract question based on the terms of its

insurance policy. The plain language of the insurance contract concerning the duty

to defend provides:

             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), 739 So.2d 191, 196 (“An insurance policy is a contract between the parties

and should be construed by using the general rules of interpretation of contracts set

forth in the Civil Code. Louisiana Ins. Guar. Ass’n v. Interstate Fire & Cas. Co.,

93-0911 (La.1/14/94), 630 So.2d 759. The judicial responsibility in interpreting

insurance contracts is to determine the parties’ common intent. La.C.C. art.2045.”).

Because the cost of defending an insured is determined by the contract of

insurance, the Court cannot create a bright-line rule prorating defense costs in

every case; it must be determined on a case-by-case basis, according to the terms

of the contract of insurance.

      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.
09/07/16

                     SUPREME COURT OF LOUISIANA

                                 NO. 2015-C-0588

              DANIEL ARCENEAUX, LOUIS DAVEREDE, JR.,
             VIVES LEMMON AND JULES MENESSES, ET AL.

                                     VERSUS

               AMSTAR CORP., AMSTAR SUGAR CORP.,
           TATE AND LYLE NORTH AMERICAN SUGARS, INC.,
               AND DOMINO SUGAR COMPANY, ET AL.

        ON WRIT OF CERTIORARI TO THE COURT OF APPEAL,
            FOURTH CIRCUIT, PARISH OF ST. BERNARD


Crichton, J., additionally concurs and assigns reasons.

      I 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., 599 So. 2d 1058

(La. 1992), long latency occupational disease cases are “unique,” because a distinct

body of jurisprudence has been developed which applies solely to them. Id. at

1065-66. As a result, I note that the holding of this case should not, as a matter of

course, be extended beyond this body of case law.

      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 covered. Third, and

relatedly, policy considerations favor the adoption of pro rata allocation in this

case, particularly insofar as holding otherwise would permit American Sugar to
obtain defense coverage for a period it did not even pay a premium for insurance.
