Steven Plitt, Expert Witness Steven Plitt, Expert Witness
Insurance Bad Faith Claim Handling Expert Serving Clients Nationwide

Posts tagged "defense costs"

CALIFORNIA COURT OF APPEALS DECIDES WHAT "FINAL ADJUDICATION" MEANS IN THE D&O INSURANCE CONTEXT

The California Court of Appeals (2nd District) in Stein v. Axis Insurance Co., 10 Cal. App. 5th, 673, 216 Cal.Rptr.3d 804 (2nd Dist. 2017) held that a provision in a D&O policy requiring the insured to repay defense expenses unless there was a "final adjudication" determining that the insured committed willful misconduct did not eliminate coverage for defense expenses incurred during the insured's appeal of the criminal fraud conviction.

Louisiana Supreme Court Adopts Pro Rata Allocation Of Defense Costs Approach On Long Latency Disease Cases

In Daniel Arceneaux, et al. v. Amstar Corp., et al., 2015-0588 (La. 9/7/16), 2016 WL 4699163 (La. 9/7/16), the Louisiana Supreme Court held that in long latency disease cases the cost of the duty to defend should be prorated between the insurers and the insured when occurrence-based policies provide coverage for only a portion of the time during which the exposure occurred. The weight of authority in the country supports the conclusion that in situations where the insured is self-insured for part of the coverage periods involved that the insured must bear a pro rata share of the defense costs. See Barry R. Ostrager & Thomas R. Newman, Handbook on Insurance Coverage Disputes, § 6.02(a)(2) (17th ed. 2014). The Court noted that the joint and several approach was not reasonable because it would treat an insured who had uninterrupted policies for 20 years the same as an insured who had a triggered policy for one year. Under the joint and several approach, the insured would be entitled to receive coverage for a period in which it did not pay a premium. Additionally, the joint and several allocation approach provided disincentives to insureds to purchase uninterrupted insurance coverage and would provide a windfall to companies that failed to obtain continuous coverage. The pro rata allocation method, by contrast, promoted risk spreading.

Requirement for pro rata allocation of defense costs among successive insurers

The California Third District Court of Appeals recently required pro rata allocation of defense costs among successive insurers. In Certain Underwriters at Lloyds, London v. Arch Specialty Ins. Co., 246 Cal.App.4th 418, 200 Cal.Rptr.3d 786 2016 WL 1436362 (3rd Dist. 2016), the Court reaffirmed California public policy as prohibiting enforcement of "escape" other insurance clauses in equitable contribution actions between successive primary insurers seeking to allocate the cost of defending construction defect litigation. Under existing law, each insurer was responsible for a pro rata share of defense costs notwithstanding the fact that one insurer's policy contained language in both the insuring agreement and the conditions section both stating that the insurer had a duty to defend only if no other insurance afforded a defense. The Court found that the placement of the escape language in the insuring agreement was not sufficient to differentiate the case from prior California precedent prohibiting the enforcement of escape other insurance clauses which appeared elsewhere in the insurance policy.

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