After Reilly-Benton Company, Inc., a named defendant in the lawsuit, entered bankruptcy, the Relators supplemented and amended their petition to name Liberty Mutual Insurance Company as a direct defendant pursuant to La. R.S. 22:1269 for the alleged liability of Reilly-Benton.

Liberty Mutual moved for summary judgment, contending that a 2013 settlement agreement between Liberty Mutual and Reilly-Benton, resolving alleged insurance coverage disputes, prevented the Relators from recovering damages from Liberty Mutual.

The trial court agreed, granted summary judgment in favor of Liberty Mutual, and dismissed the claims against Liberty Mutual with prejudice.

The dispute reached an appellate court in Louisiana.

Louisiana Law

La. R.S. 1262 provides:

No insurance contract insuring against loss or damage through legal liability for the bodily injury or death by accident of any individual, or for damage to the property of any person, shall be retroactively annulled by any agreement between the insurer and insured after the occurrence of any such injury, death, or damage for which the insured may be liable, and any such annulment attempted shall be null and void.

The Appellate Court's Decision

The appellate court reversed.

In its decision, the appellate court explained that it had addressed a similar scenario in another asbestos exposure lawsuit, Long v. Eagle, 158 So.3d 968 (La. Ct. App. 2015).

In Long, the plaintiff named Eagle Asbestos & Packing Company, Inc., and one of its commercial general liability ("CGL") insurance carriers, OneBeacon, as defendants. OneBeacon brought a third-party claim against another CGL insurer, United States Fidelity and Guaranty Company ("USF&G"), seeking a declaration that USF&G was obligated to pay its share of defense costs and for reimbursement of expenses expended on USF&G's behalf.

The exposure alleged in Long spanned from 1958 to 1979. During that time period, OneBeacon and USF&G had multiple years where they issued the primary CGL policy to Eagle. In 2003, Eagle and USF&G entered into a settlement agreement that resolved coverage disputes, including coverage for USF&G's pro-rata share of defense costs.

USF&G asserted the settlement agreement as a defense to OneBeacon's claim against it.

OneBeacon moved for summary judgment, claiming that the settlement agreement between Eagle and USF&G was void under La. R.S. 22:1262.

The trial court granted the motion for summary judgment, USF&G appealed, and the appellate court reversed the trial court.

In so doing, the appellate court found that the public policy protections discussed in Washington v. Savoie, 634 So.2d 1176 (La. 1994), and the mandates of La. R.S. 22:1262 were not intended to protect other insurers. At the same time, the appellate court explicitly stated that if the party seeking to challenge the settlement agreement was an injured plaintiff, its analysis would be different.

The appellate court in Courville pointed out that the Relators were seeking to challenge the settlement agreement between Liberty Mutual and Reilly-Benton.

It then considered the applicability of Washington and La. R.S. 22:1262 under these circumstances.

The appellate court explained that the Louisiana Supreme Court's opinion in Washington examined the law and public policy relating to the reformation of insurance policies, specifically when the reformation adversely affected a plaintiff asserting tort claims. The appellate court pointed out that the Louisiana Supreme Court acknowledged that reformation of an insurance contract to correct a mistake within a policy was not prohibited. However, the appellate court added, the Louisiana Supreme Court declared that when reformation would prejudice an injured third party, Louisiana's public policy precluded post-injury contract reformation of any kind.

Therefore, the appellate court ruled, applying Louisiana's public policy law as set forth in Washington, a CGL insurer that provided unlimited coverage under a policy of insurance was barred from any post-injury settlement to limit that liability.

The appellate court also found that the "plain language" of La. R.S. 1262 was "clear." Given that statute, the appellate court held, insurers and insureds "cannot retroactively rescind or annul policy contracts by agreement post-occurrence."

In the appellate court's view, the 2013 settlement agreement between Liberty Mutual and Reilly-Benton "essentially rescinded or annulled policy contracts for injuries that were sustained decades ago," in violation of La. R.S. 1262. The appellate court ruled, therefore, that the 2013 settlement agreement between Liberty Mutual and Reilly-Benton "undoubtedly" violated the statute.

Accordingly, the appellate court concluded, the 2013 settlement agreement between Liberty Mutual and Reilly-Benton was null and void as to third-party tort victims and unenforceable against the Relators.

The case is Courville v. Lamorak Ins. Co., No. 2019-C-0902 (La. Ct. App. Oct. 21, 2019). Attorneys involved include: Gerolyn P. Roussel, Perry J. Roussel, Jr., Jonathan B. Clement, Lauren R. Clement, Benjamin P. Dinehart, ROUSSEL & CLEMENT, Mandeville, LA, COUNSEL FOR PLAINTIFFS/RELATORS. H. Minor Pipes, III, Stephen Miles, PIPES MILES BECKMAN, LLC, New Orleans, LA; Robert A. Kole, CHOATE, HALL & STEWART LLP, Boston, MA, COUNSEL FOR DEFENDANT/RESPONDENT.