In Police Jury of Calcasieu Par. v. Indian Harbor Ins. Co., the Louisiana Supreme Court recently answered three certified questions addressing a group of insurers’ attempts to enforce an arbitration clause. The court’s answers all favored the policyholders and maintained Louisiana’s stance that arbitration clauses in insurance policies ran counter to public policy in the state. This safeguarding of policyholders’ rights should make Louisiana law attractive for application to insurance disputes.

When policyholders submit a claim requesting defense of a lawsuit, insurers often agree to defend under a Reservation of Rights (“ROR”). In many states, the ROR allows an insurer to retain the right to seek reimbursement of defense expenses should it later be determined that no defense was actually due under the policy. But what if the counsel appointed by the insurer faced a conflict of interest throughout the defense? Cases examining this issue are sparse, but authority suggests that no reimbursement is proper under such circumstances.

This blog examines some recent coverage cases across the country to highlight the inconsistency with which courts apply principles of coverage law that may appear to be long since settled. Many ideologically conservative judges refuse to embrace modern trends that benefit policyholders. It is an unfortunate truth that the prevailing party in an insurance suit is often dictated as much by the judge assigned as by the actual facts of the case.

In Tzumi Elecs. LLC v. Burlington Ins. Co., the Southern District of New York court concluded that all potentially covered claims arose out of the explicitly pled patent infringement causes of action in the underlying complaint. Not so. That conclusion was unsupported by analysis explaining how the injury flowing from allegations of disparagement (the asserted basis for coverage) necessarily arose from the patent infringement. This decision inappropriately elevates the labels the plaintiff attached to the cause of action over the actual facts alleged. Further, it fails to account for the “potential for amendment” doctrine that has been accepted under New York law as well as inferences arising from the asserted fact allegations in light of the claimants’ potential intent to avoid triggering potential coverage.

A growing trend in insurance denials (and subsequent litigation) is arguing that policies should be interpreted in a manner belied by the actual language. This runs contrary to governing law, which actually allows policyholders to attack restrictive interpretations by demonstrating that alternative language would have readily achieved the insurer’s preferred reading. A policyholder’s burden is not to promote the most reasonable interpretation. A court must accept any reasonable construction promoted by the policyholder.

Upon signing an insurance agreement, insurers take on a duty to investigate claims reported to them. In the case of first-party claims (i.e., claims in which the policyholder suffers injury), that duty requires the insurer to investigate the factual circumstances of the claim. For third-party claims (i.e., claims in which the policyholder caused another party to suffer injury), the duty extends to investigating the latest legal authorities to determine whether the insurer has a duty to defend or indemnify its insured. Many insurers, however, fail in this duty, relying on outdated or inapplicable case law to support to denials. This is especially true in the context of “advertising injury” policies, which turn many of the general rules for coverage law on their head.