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THE WISCONSIN SUPREME COURT, IN A SPLIT DECISION, REAFFIRMED THE "FOUR-CORNERS" RULE GOVERNING A LIABILITY INSURANCE COMPANY'S DUTY TO DEFEND

The High Court confirmed that under Wisconsin Law there were no exceptions to the rule that extrinsic evidence cannot create a duty to defend.

NEW YORK APPELLATE COURT REJECTS THE CREATION OF AN UNAVAILABILITY EXCEPTION TO NEW YORK'S RULE REQUIRING UNINSURED PERIODS TO BE ALLOCATED TO THE INSURED IN CONTINUOUS AND PROGRESSIVE LOSS CASES

New York Law requires insurance companies to allocate continuous, progressive losses on a pro rata basis among all triggered policies based upon a time-on-the-risk allocation model. The New York Appellate Court recently rejected an invitation to create an unavailability exception to the allocation rule so that insurers were not required to indemnify the insured for periods when liability insurance was unavailable in the marketplace.

Duty to Defend Decision in the LA Supreme Court

THE LOUISIANA SUPREME COURT RECENTLY HELD THAT THE DUTY TO DEFEND IN LONG LEGACY DISEASE CASES SHOULD BE PRORATED BETWEEN THE INSURANCE COMPANY AND THE INSURED IN SITUATIONS WHERE AN OCCURRENCE-BASED POLICY PROVIDED COVERAGE FOR ONLY A PORTION OF THE TIME FOR WHICH THE EXPOSURE OCCURRED.

NEW YORK APPELLATE COURT REJECTS THE CREATION OF AN UNAVAILABILITY EXCEPTION TO NEW YORK'S RULE REQUIRING UNINSURED PERIODS TO BE ALLOCATED TO THE INSURED IN CONTINUOUS AND PROGRESS LOSS CASES

New York law requires insurance companies to allocate continuous, progressive losses on a pro rata basis among all triggered policies based upon a time-on-the-risk allocation model. The New York Appellate Court recently rejected an invitation to create an unavailability exception to the allocation rule so that insurers were not required to indemnify the insured for periods when liability insurance was unavailable in the marketplace. 

Four Corners Rule Upheld in WI Supreme Court Case

The Wisconsin Supreme Court, in a split decision, reaffirmed the "four corners" rule governing a liability insurance company's duty to defend. The High Court confirmed that under Wisconsin law there were no exceptions to the rule that extrinsic evidence cannot create a duty to defend.

THE LOUISIANA SUPREME COURT RECENTLY HELD THAT THE DUTY TO DEFEND IN LONG LEGACY DISEASE CASES SHOULD BE PRO RATED BETWEEN THE INSURANCE COMPANY AND THE INSURED IN SITUATIONS WHERE AN OCCURRENCE-BASED POLICIES PROVIDED COVERAGE FOR ONLY A PORTION

In Arceneaux, et al. v. Amstar Corp., et al., 299 So.3d 277, 2015-0588(La., 9/7/16), the Louisiana Supreme Court allocated the costs of defending long legacy disease claims between the insurer and insured based on a time-on-the-risk allocation model. Under existing Louisiana law, an insurer's duty to indemnify was to be prorated among insurance carriers based on a time-on-the-risk approach the insurance carriers that were on the risk during the period of exposure to the injurious conditions. While the law in Louisiana was settled regarding time-on-the-risk pro rata allocation applying to indemnification, there was no Louisiana precedent on whether the insurer's duty to defend could also be pro rated among the insurers and the insured during periods of self-insurance in long latency disease cases. The Court then adopted the time-on-risk method of allocation for defense costs, adopting the reasoning of the Sixth Circuit United States Court of Appeals in Ins. Co. of North America v. Forty-Eight Insulations, Inc., 633 F.2d 1212 (6th Cir. 1980), clarified on re'hrg 657 F.2nd 814 (6th Cir. 1981), cert denied, 454 U.S. 1109 (1981). The Louisiana Court found that the pro rata allocated scheme was an equitable system.

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, ยง 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.

The Wyoming Supreme Court Recently Adopted The Notice-Prejudice Rule In A Historic Jurisprudential Review Of Why The Notice-Prejudice Rule Is A Better Approach Than The Traditional Rule Which Does Not Require Prejudice

The Wyoming Supreme Court in Century Surety Co. v. Jim Hipner, LLC, 2016 WY 81, 377 P.3d 784 (2016), engaged in a jurisprudential review of the enforceability of non-prejudicial notice requirements in insurance policies and why courts have moved away from the traditional rule by adopting the modern view which is commonly called the notice-prejudice rule. The case provides an excellent expose of the rationales supporting the notice-prejudice rule and is a must read.

Colorado Supreme Court Rejects The Use Of Extrinsic Evidence To Create Ambiguity In An Insurance Contract

In American Family Mut. Ins. Co. v. Hansen, 2016 CO 46, 275 P.3d 115 (Colo. 2016), the Colorado Supreme Court found that when a discrepancy exists between the policy declarations page and an extrinsic lienholder statement regarding who was an insured, the discrepancy did not create an ambiguity because the ambiguity can only be used under Colorado law to determine whether an ambiguity exists within the four-corners of the insurance contract itself and ambiguity could not be created by an extrinsic document which was not part of the insurance contract. For ambiguity to exist, it must appear in the four-corners of the document before extrinsic evidence could be considered. Extrinsic evidence could only be used as an aide in ascertaining the intent of the parties once an ambiguity was found.

Wisconsin Supreme Court Eliminates Any Doubt That There Is No Exception To The Four-Corners Rule In Duty To Defend Cases In Wisconsin

In a split decision, the Wisconsin Supreme Court in Water Well Solutions Service Group, Inc. v. Consolidated Ins. Co., 2015 WI 54, 369 Wis.2d 607, 881 N.W.2d 285 (2016), reaffirmed the "four-corners" rule governing a liability insurer's duty to defend in Wisconsin. The Court unambiguously reaffirmed the rule and confirmed in the majority opinion that there were no exceptions to the rule that would permit extrinsic evidence to create a duty to defend where no duty to defend otherwise existed. According to the majority's view, the four-corners rule promoted certainty and avoided speculation over the underlying plaintiff's true allegation. A vigorous dissent by two Justices challenged the majority opinion both in principle and application. The dissent noted that Wisconsin was in a shrinking minority of jurisdictions clinging to a strict application of the four-corners rule and that Wisconsinites would be better served by a rule that recognized substance over form in allowing extrinsic evidence to inform the duty to defend decision.

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