Pollution Policy’s Late Notice Requirement In Buy-Back Provision Upheld Regardless Of Prejudice

Starr Indemnity & Liability Co. v. SGS Petroleum Service Corp.
(5th Cir., June 18, 2013)

This environmental coverage action arises from a dispute on as to the notice provision involving a pollution occurrence and whether the policyholder was required to show prejudice before denying coverage as required by a pollution buy-back provision in the policy.

Specifically, Starr’s excess coverage policy contained an absolute pollution exclusion clause.  However, the parties negotiated a buy-back provision which deleted the original pollution exclusion and replaced it with a new provision providing coverage under certain specific conditions. One was that any discharge or escape of pollutants must have been reported within 30 days after having been known to the insured. The insured did not report the triggering incident to the insurer until 59 days after it learned of the chemical release. The court, relying on its decision in Matador Petroleum Corp. v. St. Paul Surplus Lines, 174 F.3d 653 (5th Cir. 1999), found that the insurer was justified in denying coverage under the specific terms of the buy-back provision which the parties had negotiated to replace the original pollution exclusion.  The court noted that, as held in Matador, supra, the plain language of the endorsement should have been respected regardless of any prejudice suffered by the insurer as a result of the late notice. The notice requirement in the supplemental pollution endorsement was essential to the bargained-for coverage.

Lastly, the court held that case law relied upon by the policyholder does not disturb the holding in Matador since those decisions did not involve a conclusion on the notice requirements for this type of supplemental coverage.  Here, as in Matador, the dispute involved a specific endorsement, separately negotiated by the parties, and with a clear notice requirement.  Thus, the court was bound by its precedent in holding for the insurer, whether or not there was prejudice.