Texas Case Law: Business Coverage Precluded by Insured’s Failure to Provide Required Notice of Claim

On June 13, 2012, The U.S. District Court for the Southern District of Texas granted summary judgment in favor of a liability insurer that seeking a declaration of non-coverage for a claim for cleanup costs associated with an environmental discharge. In St. Paul Surplus Lines Ins. Co. v. Davis Gulf Coast Inc., No. 11-0403 (S.D. Tex. June 13, 2012), the district court found that the insured failed to provide notice of the claim within 90 days of discovering the leak, as required under the policy.

On Mar. 4, 2010, the insured’s employee inspected property with representatives of the EPA. During their inspection they discovered oil leaking into the environment. Davis Gulf Coast spent $161,165.58 cleaning up the site, and completed the cleanup work around September 2010.

On Sept. 22, 2010, Davis reported the claim to its insurer, but St. Paul denied coverage based on Davis’ failure to report the leak within 90 days of its discovery as required under the policy. St. Paul then sued Davis seeking a declaration of non-coverage under the policy. Both parties moved for summary judgment.

The district court noted that Davis acquired coverage only for cleanup costs arising from a release of a pollutant that was sudden and accidental, beginning on a specified date and time, which becomes known to the insured within 30 days of the release and is reported to St. Paul within 90 days of the release. The court found that the 90-day notice requirement was not a general notice provision that required the insurer to show prejudice if the insured did not comply, but instead was part of the definition of coverage, bearing a substantial relation to the degree of risk assumed by St. Paul in underwriting the policy.

Accordingly, and after finding that Davis failed to comply with the plain terms of the notice provision, the court granted summary judgment in St. Paul’s favor, ruling that the insurer was not liable for the clean up costs associated with the oil leak.

This case is a perfect example of the perils of not understanding your policy. Had the insured complied with the notice requirements of the policy, the insurer might have paid for the oil leak cleanup.