(Article from Insurance Law Alert, April 2018)
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A Kansas federal district court predicted that the Texas Supreme Court would require an insurer to establish prejudice in order to deny coverage based on the policyholder’s violation of a time-specific notice provision. PetroSantander (USA), Inc. v. HDI Global Ins. Co., 2018 WL 1706516 (D. Kan. Apr. 9, 2018).
PetroSantander sought coverage from HDI for damage caused by a saltwater spill. Although the relevant HDI policy contained a pollution exclusion, it also included a pollution endorsement that extended coverage for pollution-related losses if certain conditions were met, including that PetroSantander report any pollution incident within 120 days. HDI argued that coverage was barred under the policy because it did not receive notice until 141 days after discovery of the spill. In ensuing litigation, both parties moved for summary judgment on whether HDI must demonstrate prejudice as a result of the late notice. Ruling on this matter of first impression under Texas law, the court ruled that prejudice was required.
The court predicted that the Texas Supreme Court would require prejudice in this context based on Texas State Board of Insurance Order 23080, which obligates all general liability policies to include an endorsement requiring insurers to establish prejudice in order to deny coverage based on late notice. Although Texas courts have not addressed whether Order 23080 applies to a time-specific notice requirement, the court reasoned that the mandatory nature of the Order, and its application to “as soon as practicable” notice requirements in claims-made policies, mitigated in favor of its application here.
The court acknowledged that two Fifth Circuit decisions have held that prejudice is not required in the context of time-specific notice requirements in pollution endorsements, but deemed those cases inapposite and unpersuasive. In particular, the court noted that those decisions did not specifically address Order 23080 and that one case involved a surplus lines carrier, rather than a general liability insurer.