Defense without Reservation Creates Waiver.


Steptore was injured when a steel cable affixed to a barge’s crane bucket broke and struck him in the face, causing him to fall and sustain disabling injuries.  Steptore sued the owner of the barge, Masco Construction Co., its primary liability insurer, Ocean Marine Indemnity Co. [the policy edition cannot be determined], and its excess liability insurer, certain underwriters at Lloyd’s. Commercial Union, Steptore’s employer’s insurer, intervened in the suit to recover amounts it had paid in workers’ compensation benefits.


Upon receiving notice of the suit, Ocean Marine retained a law firm to represent both Masco and Ocean Marine.  Six months after undertaking the defense of Masco, Ocean Marine denied coverage on the grounds that Masco had breached a navigation warranty in the policy.  The law firm initially retained to represent both Masco and Ocean Marine withdrew from representing Masco, but remained as counsel for Ocean Marine.  Masco retained separate counsel and filed a third-party claim against Ocean Marine and others.


Prior to trial, the trial court granted Steptore’s and Masco’s motions for summary judgment on the coverage issues.  After a trial on the merits, the court entered judgment in favor of Steptore and against Masco, Ocean Marine, and Lloyd’s.  The court also awarded attorney fees to Masco as a result of Ocean Marine’s denial of coverage.


Ocean Marine and Lloyd’s appealed the judgment, arguing that there was no coverage because Masco had breached the navigation warranty. The court of appeal found that the warranty was unambiguous, and that Ocean Marine was not precluded from asserting it as an exclusion.  It therefore reversed the trial court judgment and rendered judgment in favor of Ocean Marine and Lloyd’s.  It also reversed the judgment for attorney fees.  [619 S2d 1183.]


The Louisiana Supreme Court affirmed the judgment in favor of the insured on the coverage issue.  It explained that waiver principles are applied stringently to uphold the prohibition against conflicts of interest between the insurer and the insured which potentially could affect the insured’s legal representation.  The court found that Ocean Marine had waived its right to assert its coverage defense when it assumed and continued the defense of its insured despite knowledge of facts supporting a coverage defense.


Ocean Marine contended that it had undertaken a prompt investigation of the facts and circumstances surrounding the claim.   The court found, however, that although the facts supporting the coverage defense were easily ascertainable, Ocean Marine unnecessarily delayed in denying coverage after it had assumed the defense.


The Louisiana Supreme Court, however, held that although Masco was entitled to Recovery of the attorney fees incurred in defending the main action, it was not entitled to the fees incurred in pursuing the coverage claim.  Therefore, it reversed the portion of judgment awarding fees to Masco in the declaratory judgment complaint.


Steptore v Masco Construction Co., Inc., 643 S2d 1213 (La 1994).