Insurance Coverage and Recovery

By Michael J. deBarros

Insurers in oilfield legacy lawsuits often argue they are not responsible for their insureds’ settlements with landowners because La. R.S. 30:29 (“Act 312”) requires the settlements to be deposited into the court’s registry for remediation.  On March 7, 2018, the Louisiana Third Circuit Court dealt a significant blow to the insurers’ argument.

In Britt v. Riceland Petroleum Co., 2017-941 (La. App. 3 Cir. 3/7/18), 240 So. 3d 986, writ denied, 2018-0551 (La. 5/25/18), the Plaintiffs sued the current and former operators of Plaintiffs’ property for damages to and remediation of their property.  The operators settled all of the Plaintiffs’ claims, and one of the operator’s insurers argued that Act 312 required the trial court to: (1) hold a contradictory hearing; (2) determine if remediation was required; and if so, (3) order the deposit of funds into the court’s registry.  The Third Circuit disagreed and held that no contradictory hearing is required when the settling parties: (1) provide notice of the settlement to the Department of Natural Resources (“LDNR”) and the Attorney General; (2) allow the LDNR thirty days to review the settlement and provide comments to the trial court; and (3) obtain the trial court’s approval of the settlement.

As a practical matter, a contradictory hearing will rarely be required under Britt since LDNR rarely objects to the settlements.  Thus, Britt makes it more difficult for insurers to refuse to pay for settlements.

If your insurer is refusing to cover your business in oilfield legacy lawsuits, Kean Miller’s Insurance Coverage and Recovery team can help.  We have recovered millions for policyholders in connection with environmental and toxic tort actions, legacy lawsuits, professional liability claims, products liability lawsuits, governmental investigations, intellectual property claims, directors’ and officers’ disputes, property losses, and business interruption losses.

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By G. Trippe Hawthorne and Mallory McKnight Fuller

Click here to review a Practice Note explaining how to enforce arbitral awards in the state and federal courts in Louisiana.  This Note explains the procedure for confirming an arbitration award in Louisiana, and the grounds on which a party may challenge enforcement under Louisiana and federal law, including the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, the Federal Arbitration Act (FAA), and the Louisiana Binding Arbitration Law (BAL). This Note also briefly explains the procedure for vacating, modifying, or correcting an arbitral award in Louisiana.

 

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By Daniel Stanton

By emergency declaration issued August 18, 2016, the Commissioner of the Louisiana Department of Insurance adopted Emergency Rule 27. Emergency Rule 27 allows the Department of Insurance to suspend certain statutes in the Louisiana Insurance Code and the rules and regulations promulgated under those statutes that may affect families and business affected by the current flood crisis in Louisiana.

While Emergency Rule 27 suspends many provisions of the Louisiana Insurance Code, most of the suspended provisions affect the ability of an insurer to cancel, terminate, non-renew, or non-reinstate a policy of insurance. One of its most significant provisions provides that an insurer may not terminate, cancel, or non-renew a policy of insurance as a result of the “inability of an insured . . . from complying with any policy provisions,” this includes non-payment of premiums. Insurers are further forbidden from imposing any interest, penalty, or other charge as a result of the enactment of Emergency Rule 27. Furthermore, the rule extends to September 10, 2016, any deadline for the submission of evidence or the completion of any act related to any claim for coverage under a policy of insurance made prior to August 12, 2016.

Emergency Rule 27 currently applies to policy holders residing in the following parishes: Acadia, Allen, Ascension, Avoyelles, Cameron, East Baton Rouge, East Feliciana, Iberia, Iberville, Jefferson Davis, Lafayette, Livingston, Point Coupee, St. Helena, St. James, St. John the Baptist, St. Landry, St. Martin, St. Tammany, Tangipahoa, Vermillion, Washington, West Baton Rouge, and West Feliciana. Emergency Rule 27 applies to any policy of insurance in effect as of 12:01 a.m. on August 12, 2016, and will remain in effect through September 10, 2016.

Additional information and a copy of Emergency Rule 27 may be found on the Louisiana Department of Insurance’s website.

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On May 5, 2015, in Kelly v. State Farm Fire & Cas. Co., 14-1921 (La. 5/5/15); 2015 WL 2082540, the Louisiana Supreme Court, in response to certified questions from the U.S. Fifth Circuit Court of Appeal, issued a unanimous decision reaffirming and clarifying the duties owed by insurers to their insureds.  The Kelly Court concluded that:

  1. An insured has a cause of action against its insurer for a generalized breach of the duty of good faith and fair dealing; and
  2. An insurer has a duty to make a reasonable effort to settle claims with an insured and claimant before the insurer receives a “firm settlement offer”; and
  3. An insured has a cause of action against its insurer where its insurer misrepresents or fails to disclose facts that are not related to the insurance policy’s coverage.

Kelly is a significant win for insureds, as insurers have typically argued that extra-contractual liability to their insureds was only for knowingly (a) misrepresenting insurance policy provisions; (b) failing  to timely pay a settlement; (c) denying coverage or attempting to settle a claim on the basis of an altered application; (d) misleading a claimant as to the applicable prescriptive period; (e) failing to timely pay the amount of any claim within sixty days after receipt of satisfactory proof of loss when such failure is arbitrary, capricious, or without probable cause; and (f) failing to pay claims when such failure is arbitrary, capricious, or without probable cause.

Kelly held that an insurer can be liable when it fails to reasonably explore settlement opportunities on behalf of its policyholder.  Moreover, under Kelly, insurers can no longer claim that they can misrepresent pertinent facts outside of their insurance policy’s language with impunity.  Thus, under a logical extension of Kelly, an insurer may also be liable to its insureds in multiple other instances, such as disregarding information in its own files so as to mischaracterize a claim; threatening to void or rescind an insurance policy without any reasonable basis therefor, or in retaliation for filing a claim; retaliating by increasing premiums; and compelling policyholders to institute litigation to recover amounts due under an insurance policy by offering substantially less than the amounts ultimately recovered in actions brought by such insureds.

Michael deBarros, Mark Mese, and Todd Rossi, of Kean Miller’s Insurance Coverage and Recovery Team represented United Policyholders, as amicus curiae in Kelly.  United Policyholder’s amicus brief can be found hereMichael deBarros argued on behalf of United Policyholders.

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By Michael J. deBarros

The Louisiana Fourth Circuit Court of Appeal held that an insurer must provide a complete defense to its insured in long-latency disease cases and that the duty to defend is not subject to proration.  See Arceneaux v. Amstar Corp., 2014-0271 (La. App. 4 Cir. 2/25/15), 2015 WL 798980.

In Arceneaux, American Sugar sued its insurer, Continental, for a defense against claims filed by a number of American Sugar’s former employees, who alleged they suffered occupational hearing loss from their exposure to industrial noise while working for American Sugar from 1941 to 2006.  Continental offered to pay, and began paying, 25% of American Sugar’s defense costs under a reservation of rights, arguing that it did not owe a complete defense because its policies covered only 26 months of the approximately 60–year time span during which the former employees alleged the exposure occurred.  American Sugar rejected Continental’s offer and filed a motion for partial summary judgment seeking, in part, a declaration that Continental owed American Sugar a full defense going forward.  The trial court held, with the appellate court affirming, that Continental must provide American Sugar with a full (100%) defense going forward.  Both courts rejected the insurers’ efforts to treat the insurers’ duty to defend like its indemnity obligations in long-latency damage cases.

Arceneaux reinforces long-standing Louisiana jurisprudence that an insurer who owes a duty to defend must provide its insured a complete defense, and cannot simply prorate the defense based on its time on the risk or on covered versus “uncovered” claims.  See American Home Assurance Company v. Czarniecki, 230 So. 2d 253 (1969) (insurer must accept defense of the entire lawsuit, even though there was ultimately no coverage); Treadway v. Vaughn, 633 So. 2d 626, 628 (La. App. 1 Cir. 1993) (“Once a complaint states one claim within the policy’ s coverage, the insurer has a duty to accept defense of the entire lawsuit, even though other claims in the complaint fall outside the policy’s coverage.”); Vaughn v. Franklin, 2000-0291 (La. App. 1 Cir. 3/28/01); 785 So.2d 79, 89 (though two insurers were entitled to seek contribution from each other, they were solidarily bound to provide a complete defense to their insured); Riley Stoker Corp. v. Fid. & Guar. Ins. Underwriters, Inc., 26 F.3d 581, 589 (5th Cir. 1994) (“Under Louisiana law, when an insurer has a duty to defend any claim asserted, the insurer must defend the entire action brought against its insured.”); Liberty Mut. Fire Ins. Co. v. Fluor Enterprises, Inc., 2012 WL 255763 (E.D. La. 2012) (insurers were solidary liable with respect to their obligation to defend their common insured); Jensen v. Snellings, 1991 WL 28988 (E.D. La. 1991) (same).

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By Sonny Chastain

We have become accustomed to having regular check-ups with our doctors. The doctor will analyze our current physical condition, including heart rate, blood pressure, cholesterol level, lung condition or otherwise. The doctor may order a treadmill test or a screening for a particular function. The doctor will also compare current test results to any prior tests to determine any changes to the body and mind resulting from the stress of our daily lives. The doctor considers any symptoms to determine whether risks associated with developing any particular disease can be reduced through diet, exercise, medication or other intervention. The goal is to stay healthy and fit. While the probing, pricking, injecting, and waiting are all uncomfortable, these activities are certainly better than a stay in the hospital or worse.

Our businesses should undergo a similar checkup or audit – to analyze risks that are connected to the business. Vital signs of the business should be examined to determine the current state of affairs. Similar to the condition of a body, after the business is formed, business owners are often just too busy competing in the marketplace to “take a physical.” The important and urgent items such as payroll, inventory, and sales are the immediate focus. Matters which are important, but non-urgent, including the “vital signs of the business,” get placed on the back burner. Business owners just do not take the time to pay attention to signs or symptoms. No different than a frog that dies because it does not realize the water is heating up, business owners do not pay attention to growth, market changes, etc., which have caused their own “water to heat up.”

Too many times the legal issues in a business are not noticed until after the business has had a “heart attack.” Steps should be taken to proactively consider areas in which the business may be vulnerable. Remedying problems which may be identified in any check-up are much easier to address before a legal issue arises. A legal check-up should be customized for the particular business, but should typically include: (1) review of the By-Laws or Operating Agreement to determine if they are current and appropriately govern the operation of the business; (2) review of insurance coverage to determine whether operational risks of the business are covered or not; (3) identification of any trade secrets and consideration of whether reasonable steps are really being taken to keep them confidential; (4) review of logos, slogans, or other indicia utilized as a trademark to identify the business and whether they are protected; (5) analyze whether the business owns a copyright in or has a license for any works that are integral to operations, like software, publications, drawings, etc.; (6) review of employee handbook and consideration of whether the business is operating consistent with it; and (7) analysis of whether certain employees should have to execute a valid non-compete or non-solicitation agreement. Similar to action items for the body like exercise, diet, or medication, intervention or remedies can be considered for any identified shortcomings of the business.

So, maybe it is time for a check-up — to pick up your head and work “on” the business and not just “in” the business. Maybe it is time to consider the applicable vital signs of the business so as to get the “house in order.” After all, there are three outcomes for a business: (1) it fails/dissolves, (2) it is inherited by the owner’s heirs, or (3) it is sold or transferred to a third party. Failing to check vital signs may contribute to the first possible outcome. Otherwise, appropriate business checkups and action items to keep the business healthy, wealthy and wise make the other two outcomes much easier to accomplish.

How healthy is your business? Is it fit, fat, or on the verge of a heart-attack or stroke? Maybe it is time to conduct a business audit to determine the current condition of the business. Much like a routine physical exam, a legal check-up by your attorney will help you address any troubling finding, and provide you with a full report on the health of your company.

 

 

By Todd A. Rossi

The legal process typically begins with a claim, which, if not resolved, can result in a lawsuit.  There are steps a business should take to protect itself at the claim stage, or when a lawsuit is served.  Larger businesses may have a risk manager with the formal training and experience needed to respond to a claim or a suit.  However, the reality is that most businesses do not have a risk manager and are unfamiliar with the legal process.  For those businesses, the following actions may be appropriate:

  1. If a pre-suit demand letter is received, or a suit is served, read it.  Do not ignore the demand letter or the suit.  There must be a formal response to a suit within a certain time or there is a risk of a judgment against the business.  Likewise, demand letters typically request a response or action by a certain date or a lawsuit will be filed. 
  2. Seek legal counsel to protect the business.  If you have a lawyer, contact your counsel immediately.  It’s time to pull out the insurance policies and immediately contact your insurance broker or agent.  A copy of the demand or the legal papers should be given to legal counsel and the broker or agent.  Insurance policies can have strict requirements related to the content and timing of notice, and any delay can adversely affect coverage.
  3. The insurance company will review the claim and the suit papers, and should give their opinion on coverage.  Most states require the insurance carriers to do so within a certain period of time, but it may not coincide with the period in which the business must respond to the suit. 
  4. If the insurance company accepts coverage and it has a duty to defend, it will appoint an attorney to defend the business and will pay a judgment or settlement, but only up to policy limits.  The business needs legal advice if the potential exposure exceeds the dollar limits of coverage. 
  5. The insurer can also deny coverage based on its conclusion that the insurance policy does not apply.  On some occasions, the insurance carrier may not respond, and follow-up is needed. 
  6. The insurance company can also agree to defend the business under a reservation of rights.  This means that the cost of legal counsel will be paid by the insurer, but the insurance company believes that there are policy terms that may preclude or limit coverage. 
  7. Many insureds wrongfully assume that there is coverage if the insurer agrees there is a duty to defend.  The insured should still consider keeping legal counsel involved throughout the litigation to monitor the likelihood of coverage.  With a reservation of rights, the insurance company can still conclude that there is no coverage when the litigation ends.
  8. Whether the insurance carrier issues a reservation of rights letter and agrees that it has a duty to defend, or if the insurance company denies coverage, the insured may need help to understand the insurers’ position.  The insurance carrier’s conclusion is not legally binding, but merely its opinion as to coverage.  Agents and brokers are a good starting point for dealing with insurance carriers that have not unconditionally accepted coverage.  The insured must decide if it will pursue litigation against the insurance company to obtain coverage if the insurance company does not pay a settlement or judgment.    
  9. Interpreting an insurance policy is a legal issue.  An attorney can assist the broker and the business by reviewing the insurance policy, the claim or suit, and providing an opinion.  With some exceptions, that cost is borne by the insured.
  10. An insured cannot settle a case or otherwise prejudice the insurer’s rights without the insurer’s consent.  Thus, before you commit to, or actually, spend any money to stop or mitigate additional losses, repair any damages, or replace any damaged items, or even settle a claim, get the insurer’s consent.

By Michael J. deBarros

A lawsuit is on the horizon, or you have been sued, so you have given proper notice to your insurance company.  Your insurance company sends a letter acknowledging the claim or suit, acknowledges its duty to defend, and states variations of any of the following:

"Please be advised that our review of this matter is continuing subject to a full reservation of rights and defenses under the referenced Policy and applicable law”

                                                           *   *   *

“[Insurance Company] reserves the right to issue a partial or complete declination of coverage in the referenced matter should it determine that coverage does not apply to some or all of the asserted claims.”

                                                          *   *   *

“[Insurance Company] is continuing to investigate this matter under a full reservation of rights and invites you to provide us with any further facts or documents that you feel might support coverage.”
 

You scratch your head in confusion.  What does the insurer mean?  You paid for insurance coverage.  How should you react to the letter?

A reservation or rights letter is a notice which states that the insurance company is investigating the claim.  While a reservation of rights letter does not mean that your claim is not covered, it indicates that the insurer has doubts concerning your coverage and may not pay the claim or a judgment.

You have several options when you receive a reservation of rights letter.  You can ignore it, you can ask for clarification, or you can dispute the reservation.  Here are a few tips to remember when dealing with an insurer who has issued a reservation of rights letter:

  1. Do not ignore a reservation of rights letter.  Insurance policies typically contain provisions that require the insured to cooperate with any reasonable requests of the insurer.  Insurers issuing reservation of rights letters may request additional information, but you should exercise care in providing information to minimize the possibility that the insurer will build a coverage case against you.
  2. If a reservation of rights letter has been issued, get your broker, agent, or lawyer involved.  You should have “conflict counsel” review the insurer’s position and give advice related to actions you should take to pursue coverage under the policy.  Seek assistance from a lawyer with insurance contract experience if the amounts at issue justify the expenses.
  3. If you disagree with your insurer’s position, do so immediately in writing.  Your response letter does not require great detail.  The purpose is to put the insurer on notice that you do not agree with its conclusions.
  4. If you do not understand the insurer’s reservation, or if the letter does not specifically refer to policy provisions, you can ask for a further explanation.  Insurers owe a duty of good faith and fair dealing to their insureds.  Thus, it is likely that you will receive some type of response from your insurer.
  5. Liability policies generally provide that the insurer has the right and the duty to defend the insured.  The obligation to defend usually begins when the insured gives notice of the suit.
  6. If your policy provides for a defense, request that the insurer provide independent counsel to represent you before the insurer embarks on a significant investigation.  You may be entitled to hire a defense lawyer of your choice at the insurer’s expense.  While your insurer is entitled to conduct a reasonable investigation, an insurer cannot delay in deciding to defend you.  The longer you wait, the more opportunity for your insurer to obtain facts to deny coverage.
  7. If your insurer unreasonably delays, or misstates the facts or provisions of its policy, it could be liable for bad faith damages.  You or your lawyer have the right to have a court resolve insurance disputes. 

By Mark D. Mese

You purchased insurance thinking that if you are sued or subject to a demand for money or damages your insurance company will defend and indemnify you.  Unfortunately, insurers deny many insureds requests for defense and indemnity.  Consider the following actions if your insurer denies your request for defense and indemnity.

  1. If you have been served with a lawsuit, make sure that you retain a lawyer to defend the lawsuit.  There is generally a very short time period between when you are served with a lawsuit and when a response is due.  Failure to have a lawyer handle the lawsuit could lead to a quick judgment against you.
  2. Discuss the denial of coverage with your insurance broker or agent.  The agent may be able to assist you in getting the insurer to reconsider its denial of coverage.
  3. If your agent is unsuccessful in rescinding the insurer’s denial of coverage, you should consider consulting with an attorney that specializes in insurance coverage and recovery for policy holders.
  4. The insurance coverage attorney will usually be able to review your insurance policy and the written demand or the lawsuit filed against you and provide an initial estimate of your chances of obtaining a defense and/or indemnity from your insurer.  The amount of time and cost for an initial estimate will vary depending on the complexity of the claim and your policy(s).
  5. If you engage an insurance coverage attorney to assist in your demand for defense and indemnity, you have several strategic options to consider.
  6. a)  The coverage attorney can stay behind the scenes and work with your agent to continue negotiations with your insurer.
    b)  The coverage attorney can negotiate directly with your insurer.
    c)  File suit against the insurer in either the pending lawsuit against you or in a separate action.

  7. The decision on what to do and when, if your insurance company denies coverage can be complex.  When and where to file a lawsuit for insurance coverage against your insurance company often requires consideration of a significant number of complex variables.  To the extent the insurance coverage and lawsuit involves significant sums of money, hiring a policy holder insurance coverage attorney should be strongly considered.  Insurance companies have insurance coverage specialists representing them who have specific knowledge.  To the extent possible you want to be on an even playing field.