It is a troubling question. It has perplexed many Judges and lawyers as well as Policyholders and their Liability Insurance Companies. The question is whether, when a Liability Insurance Company wrongfully denies its Duty to Defend in a given case, it has by that denial waived its right to raise defenses to its Coverage in order to limit its extracontractual liability for all or a part of the loss incurred by the Policyholder as a result.
The Supreme Court of Louisiana recently added its answer to this question, firmly rejecting waiver under those circumstances:
We granted a writ application in this insurance case primarily to determine whether the lower courts erred in holding that the insurer waived its right to enforce its policy defenses because it breached its duty to defend. After reviewing the record and the applicable law, we find that the lower courts erred in holding the insurer liable for 100% of the claims asserted by the insured. In spite of breaching its defense duty, the insurer was entitled to rely on its policy defenses in limiting its indemnity obligation. Therefore, we reverse the judgment of the court of appeal on that issue and render judgment against the insurer for the proper amount due under the insurance policies. All other issues are remanded to the trial court.
Download Arceneaux v. Amstar Corp. (La. Case No. 2010.C.2329, Opinion Filed July 1, 2011) PUBLIC ACCESS, also published as Arceneaux v. Amstar Corp., --- So.3d ----, 2011 WL 2591701 *1 (La. July 1, 2011)(authorized password required to access Westlaw).
"Policy Defenses" was used interchangably in this Opinion with "coverage defenses". See Arcenaux v. Amstar Corp., 2011 WL 2591701 at *6. The "general liability insurance company" in this case specifically "disclaimed liability" (denied liability for indemnity and withdrew from the defense) for two reasons: (1) "employee exclusions," i.e., "exclusions for bodily injury to employees of the insured arising out of the course and scope of employment" which the Insurance Company, Continental, erroneously thought was contained in each and every one of eight [8] Insurance Policies it issued, and (2) that the Bodily Injury alleged in the Underlying Liability Claims did not take place during one or more of the Continental Policy Periods. Id. at *1.
For an interesting take by a Policyholder Attorney on the Duty to Defend generally under Louisiana Law, see Todd A. Rossi, Esquire, "Insured's Allegations May Trigger Insurer's Duty to Defend" posted 11.04.10 on Louisiana Law Blog.
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