Volunteer Firemen "On the Hook" in Louisiana

Louisiana is a "direct action" state that continues to present new challenges for insurers. Over the years, Louisiana courts have expanded the duty to defend. This expansion created pitfalls for the insurer and forced the provision of a complete defense, even when all or a majority of the claim was not covered by the insurance policy. However, some of this expansion has been drawn back by the Louisiana Supreme Court which recently ruled that, in latent, long-term exposure cases, the duty to defend is to be spread across a number of years­­­--as opposed to the arbitrary selection of a single insurer to defend the entirety of the case. This change presents opportunities for immediate risk transfer and reimbursement to recoup what can be significant dollars invested in the defense of legacy and environmental actions.

A General Overview: Like many other states, an insurer’s duty to defend suits against its insured is broader than its liability for damage claims. The duty to defend is determined by the factual allegations contained in the plaintiff's petition, which are to be broadly construed. American Home Assurance Co. v. Czarniecki, 230 So.2d 253 (La. 1969). The court examines the duty under the “eight corners” rule which means that the duty attaches if a review of the four corners of the policy and the petition raises the potential for coverage and coverage is not unambiguously excluded. Once a complaint states one claim within the policy's coverage, the insurer has the duty to defend the entire claim, even though other claims in the complaint fall outside the policy's coverage. Treadway v. Vaughn, 633 So.2d 626 (La. App. 1 Cir. 1993), writ denied, 635 So.2d 233 (La. 1994).

Execution of the defense duty can present big challenges given that Louisiana is a direct action state where the attorney is often called upon to represent both the insured and the insurer. If the insurer does not properly handle the assignment, coverage positions can be waived. See Steptore v. Masco Const. Co., 643 So. 2d 1213 (La. 8/18/94); Sosebee v. Steadfast Ins. Co., 701 F.3d 1012, 1020 (5th Cir. 2012). Additionally, insurers must recognize that Louisiana has recognized Cumis (insured selected) counsel in situations when coverage positions issue. Belanger v. Gabriel Chemicals, Inc., 00-0747 (La.App. 1 Cir. 5/23/01); 787 So.2d 559, writ denied, 01-2289 802 (La. 2001); So.2d 612 (citing 46 C.J.S.§ 1157 (1993). In such a situation, independent counsel must be separately retained to represent the diverging interests.

When is the duty to defend discharged: The court will determine whether exhaustion of policy limits will terminate an insurer’s obligation to defend the insured on a case-by-case basis, taking into consideration whether the settlement was made in good faith. Holtzclaw v. Falco, 355 So.2d 1279 (La. 1977). An insurer that “hastily enters a questionable settlement simply to avoid further defense obligations under the policy” does not act in good faith and may be held liable for damages caused to its insured. Pareti v. Sentry Indemnity Co., 536 So.2d 417, 423 (La. 1988). The timing of its withdrawal from the suit is critical to a determination of the insurer’s good faith. A tender of policy limits into the registry of the court may terminate the duty to defend; however, the tender must comply with all of the statutory requirements (to include the admission of liability). In this connection, an insurer who wishes to tender its limits and admit liability may well face a challenge from the insured that such action is a breach of its good faith obligations. Pareti, supra.

Long-Tail Exposure Cases: For some time now, Louisiana courts have recognized the concept of “horizontal spreading” over a number of years based on the “trigger” of coverage each year a policy was in place. See Cole v. Celotex Corp., 599 So. 2d 1058 (La. 1992) and Norfolk Southern Corp. v. Cal. Union Ins. Co., 859 So. 2d 167, 192 (La. App. 2003),writ denied, 861 So. 2d 578 (2003). The practical effect is to hold each insurer liable to indemnify only for its pro-rata time on the risk and, if the insured was not covered for a period of time, it bore its own pro-rata portion of the risk.

Until recently, the courts held that the duty to defend in such actions was a solidary (joint and several) obligation, meaning that the insured could select any carrier and require it to defend the entire claim. Simply, the courts held that the duty to defend was not subject to proration such that an insurer who was on the risk for a very short time could be compelled to pay all of the fees and costs and must then file a reimbursement action to collect from other insurers. But, the Louisiana Supreme Court recently ruled that defense costs are now subject to proration in the same manner as with indemnity. Arceneaux v. Amstar Corp., 15-0588 (La. 9/7/16); 200 So 3d 277.

At the outset, almost every long-tail exposure claim is a complex action that can take years to resolve. It is nearly always a very expensive proposition in terms of defense costs. The Arceneaux decision has meaningful, real-world impact upon both the insurer and the insured.

From the insurer’s perspective, it can easily calculate its percentage of time on the risk and thereby readily ascertain what it owes in the defense of the action. Insurers can applaud the fact that they no longer pay for uninsured time on the risk or the portion of recalcitrant insurers who do not wish to “participate” in a joint defense.

From the insured’s perspective, new incentive exists to scour all avenues to find older policies that may have been on the risk to avoid having direct participation in defense costs. In this regard, the insured will now have strong monetary incentive to keep all policies on file (or to take depositions of agents and brokers to identify coverage that may have been in place). Of course, insurers who otherwise might have remained unknown might now have an active role in long-tail exposure cases.

John Wolff is a member of the management committee and a senior partner at Keogh Cox with more than thirty years of experience. John has made his mark in a practice that has included complex litigation, commercial disputes, serious injury, bad-faith and insurance coverage, legacy/long-term exposure, and other matters. He has litigated numerous significant cases in state and federal courts and regularly appears before the courts of appeals in and out of the state. John has devoted attention to non-profit boards dedicated to assisting at-risk children. In his spare time, he enjoys spending time with wife, his three children, and grandchildren, playing tennis, and hiking.

The recent decision in Gibson v. Wal-Mart Louisiana, LLC, 20-0033 (La. App. 4 Cir. 8/27/20), 2020 WL 507804 re-affirms that a workers’ compensation claim based on an unwitnessed accident is subject to pretrial dismissal where there is no corroborating evidence.

In Gibson, the plaintiff, a department manager for Walmart, claimed injury while picking up boxes. Although no one witnessed the incident, the plaintiff claimed that two managers working nearby were made aware of the accident and injuries almost immediately.

Walmart denied the claim in response to numerous “red flags.” For example, the two managers identified by the claimant denied any knowledge. Also, the first reference in a medical record to the alleged June accident came in mid-October.

Walmart filed a motion for summary judgment arguing that plaintiff did not satisfy her evidentiary burden. In response, Gibson countered that the conflict between her testimony, the co-workers’ testimony, and the medical records created genuine issues of material fact to be decided at trial. The OWC trial court granted summary judgment and the plaintiff appealed.

In affirming the dismissal, the Fourth Circuit Court determined that Gibson’s testimony, standing alone, did not create a genuine issue of material fact. The general rule regarding unwitnessed accidents in worker’s compensation cases is well defined. Under this rule, an employee may prove by his or her testimony alone that an unwitnessed accident occurred only if the employee can establish that: (1) no other evidence discredits or casts serious doubt upon the worker's version of the incident; and (2) the worker's testimony is corroborated by the circumstances following the alleged incident. Ardoin v. Firestone Polymers, L.L.C., 10-0245 (La. 1/19/11), 56 So. 3d 215, 218.

Because evidence such as the delay in medical treatment raised doubt and Gibson lacked other corroboration, the dismissal of her claim was upheld. Gibson reminds that questionable unwitnessed accident claims without corroborating evidence can and should be dismissed via pretrial motion, notwithstanding the “relaxed rules of evidence and procedure” in workers’ compensation courts.

Ed Stauss is a partner with Keogh Cox. His practice relates mainly to workers compensation defense and the subrogation recovery. Ed is an avid and long time fan of the professional and major college sports teams in the area. He also enjoys running year-round, from 2 milers & 5Ks in the spring and summer to half marathons and full marathons in the fall and winter.

The Louisiana Supreme Court has ruled 6-1 that the funding method for the private school tuition voucher program approved by the Legislature last year is unconstitutional under La. Const. art. VIII, Sect. 13(B). The decision leaves uncertain the status of the approximately 8,000 students who had been approved for vouchers for the 2013-2014 school year.In Louisiana Federation of Teachers et al. (No. 2013-CA-0120), the Court held that once funds are dedicated to the state's Minimum Foundation Program for public education, the Constitution prohibits the use of those funds for the tuition costs of nonpublic schools and nonpublic entities. The Court reasoned that it could not sanction the voucher program's funding method when the source of those funds specifically mandated that they be spent on public education. The Court rejected the argument that the voucher program violated the constitutional requirement that a legislative bill have only "one object."The voucher program was part of a 2012 school reform program that allowed the State to offer vouchers to a large number of Louisiana students and to expand the number of privately managed charter schools.The Jindal administration has pledged to continue the program. In response to the ruling, Jindal stated, "We're disappointed the funding mechanism was rejected, but we are committed to making sure this program continues and we will fund it through the budget."The passing of the voucher program legislation was a high-profile affair prominently covered by local and even national media. In this context, the Court felt it advisable to confirm the Supreme Court's role in approving or rejecting legislation. The first page of the opinion includes the following quote:

The determination of how to best provide for the education of children is not the role of the court in this matter. We defer that determination to those more learned in the fields of education and public policy. The court's role is to evaluate the law set forth in the constitution to determine whether the matters addressed by the legislature comply with the relevant constitutional provisions and "not to legislate social policy on the basis of our own personal inclinations." State v. Smith, 99-0606, 99-2094, 99-2015, 99-2019, p. 11 (La. 7/6/00), 766 So. 2d 501, 510. [Emphasis added]

One might reasonably expect that this will not be the last time the Louisiana Supreme Court will be asked to consider the voucher program.