Duty to Defend Terminates When Event Occurs which Establishes Policy Unambiguously Excludes Coverage

Case:
Twin City Fire Ins. Co. v. JL Steel Reinforcing, LLC, et al.
Louisiana First Circuit Court of Appeal
2013-0756 C/W 2013-0757 (La. App. 1 Cir. 3/24/2014), 2014 La. App. LEXIS 776

Twin City Fire Insurance Company (“Twin City”) issued a comprehensive general liability policy to its insured, a subcontractor on a Louisiana Department of Transportation and Development construction project. The subcontract between the Twin City insured and the general contractor requiredTwin City's insured to provide insurance coverage to the general contractor as an “additional insured.” The insured procured insurance from Twin City to comply with the subcontract and provide additional insured coverage for organizations with which it contracted. The wording of the additional insured provision expressly limited coverage to the additional insured's vicarious liability for the fault of the named insured.

Following a work related death on the construction project, a tort suit was filed in which the general contractor demanded defense and indemnification from the Twin City insured pursuant to the subcontract. Twin City filed a petition for declaratory judgment, seeking a declaration that its policy precluded additional insured coverage for the claim asserted against the general contractor in the underlying tort action. Following a bench trial on Twin City’s suit for declaratory judgment, the trial court found in favor of the general contractor, holding that the Twin City policy issued to the insured subcontractor afforded coverage to the general contractor as an “additional insured” and that Twin City owed a duty to defend the general contractor “through the appeal process” for the acts alleged in the petition in the underlying tort suit.

At issue on appeal was whether an insurer's duty to defend an additional insured in an underlying tort suit terminated at some point after the original petition was filed; and, if so, exactly when the duty to defend ended. The Louisiana First Circuit Court of Appeal held that Twin City owed the general contractor a duty to defend through the date of the occurrence that eliminated any possibility that the general contractor could have been cast in liability, vicariously, for the fault of the insured subcontractor, which was the date on which the trial court signed a judgment dismissing the insured subcontractor with prejudice from the underlying tort suit. In so holding, the First Circuit reasoned that the duty of an insurer to defend is triggered when the petition suggests the potential for coverage; however, when an event occurs which shows that coverage is unambiguously excluded, the duty to defend the insured terminates. Accordingly, the First Circuit amended the trial court’s judgment in part to provide that Twin City owed the general contractor the cost of defense from the date of the first-filed petition in the underlying tort suit through and including the date that the insured subcontractor was dismissed with prejudice from the underlying tort suit. Twin City owed no duty to defend the general contractor beyond that date as the general contractor could not have been held vicariously liable for the subcontractor’s fault at any time thereafter.