Source: http://www.businessinsurance.com, March 28, 2014
By: Judy Greenwald
A federal judge in Louisiana has ordered an Ace Ltd. unit to pay an energy company $11.3 million in defense costs and attorneys fees, stemming from an environmental liability policy dispute.
The “highly contentious dispute” between Baton Rouge, La.-based Louisiana Generating L.L.C. and Chicago-based Illinois Union Insurance Co., a unit of Philadelphia-based Ace USA, stems from a premises pollution liability policy issued to the company by Illinois Union, according to Thursday’s ruling by the U.S. District Court in Baton Rouge in Louisiana Generating L.L.C. and NRG Energy Inc. v. Illinois Union Insurance Co.
NRG, based in Princeton, N.J., and Houston, is Louisiana Generating’s parent company.
According to the ruling by Judges James J. Brady, the underlying suit by the U.S. Environmental Protection Agency, which was later joined by the Louisiana Department of Environmental Quality, alleged that Louisiana Generating had violated the Clean Air Act by performing work without a permit that increased certain emissions at its coal-fired electric generating plant.
After it was faced with legal action from both environmental agencies, Louisiana Generating sought coverage under its Illinois Union policy, which the insurer denied, and the company was forced to pay for its own defense costs, according to the ruling.
Litigation over the issue was filed in both New York and Louisiana before eventually winding up in Louisiana. The Louisiana court ruled that Louisiana Generating’s policy imposed upon the insurer a duty to defend the company in the underlying suit, which was subsequently affirmed by the 5th U.S. Circuit Court of Appeals in New Orleans.

Fee recoveries

The latest ruling in the case is in response to Louisiana Generating’s attempt to recover two types of fees: the attorney’s fees associated with resolving the issue of the insurer’s duty to defend and the defense costs incurred during the original lawsuit.
The District Court ruled in favor of Louisiana Generating in both cases. It held the insurer must pay $2.4 million in attorney’s fees, plus costs and prejudgment interest associated with resolving the issue of the insurer’s duty to defend.
Furthermore, the insurer must pay $7.7 million in fees and costs incurred by Louisiana Generating to defend itself in the original lawsuit plus prejudgment interest, the court said.
“The insurer’s liability for these costs is well settled,” said the court. “The issue before the court is whether the submitted defense costs damages are reasonable.”
“Applying the presumptively reasonable fee analysis set forth (earlier), the court finds that the fees submitted by (Louisiana Generating) are reasonable,” the court said.