Starr Indemnity & Liab Co. v. SGS Petroleum Service

Jun 18: In the U.S. Court of Appeals, Fifth Circuit, Case No. 12-20545. Appeal from the United States District Court for the Southern District of Texas. The Appeals court summarizes, "An insurer sought a declaratory judgment that it was not required to show prejudice before denying coverage for liability arising out of a pollution occurrence which the insured did not report within thirty days, as required by a pollution buy-back clause in the policy. The district court granted the insurer's motion for judgment on the pleadings and denied the insured's motion for summary judgment. We affirm." The decision is based primarily on decisions of the Texas Supreme Court.

 

    On November 7, 2010, an accidental release of the chemical meta-toluene demine occurred while an SGS employee was conducting unloading operations at a Bayer chemical plant in Baytown, Texas. SGS learned of the release that same day. Based on the initial report and information Bayer provided SGS, the preliminary estimate for the clean-up costs was between $600,000 and $1 million. Because this was within the $2 million coverage limit of its primary policy with Allianz, SGS did not inform Starr of the release. However, on December 20, 2010, Bayer presented SGS with invoices reflecting clean-up costs of over $4 million. Only in late December did SGS first realize the costs exceeded $2 million and would trigger coverage beyond the limits of its policy with Allianz. On January 5, 2011, fifty-nine days after SGS learned of the chemical release, SGS sent an email reporting the release to Starr.

 

    Starr and SGS had added to the policy a provision, commonly called a pollution "buy-back," which deleted the pollution exclusion and replaced it with ". . .This exclusion shall not apply, however, provided that the assured establishes that all of the following conditions have been met: . . . (4) the discharge, dispersal, release or escape was reported in writing to these underwriters within 30 days after having become known to the assured.

 

    SGS argues that the opinion is "no longer tenable" and its reasoning is "deeply flawed." It maintains that the Texas Supreme Court has now changed the law pertaining to notice requirements in insurance contracts, citing two cases referenced as PAM, Inc. v. Hanover Ins. Co., 243 S.WE.3d 630 (Tex. 2008) and Prodigy Communications Corp. v. Agricultural Excess & Surplus Ins. Co., 288 S.WE.3d 374 (Tex. 2009). But, the Appeals Court disagreed and said, ". . . we are dealing with a specific endorsement, separately negotiated by the parties, and with a clear notice requirement. Following an inquiry similar to the one outlined in PAM and Prodigy, Matador concluded that a notice requirement in this type of supplemental pollution endorsement is essential to the bargained-for coverage. We remain bound by that precedent."

 

    Access the complete opinion (click here). [#Remed, #CAD]

 

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