Regular people in Weatherford, Aledo, Millsap, Willow Park, Hudson Oaks, Azle, Springtown, Mineral Wells, Brock, and other places in Parker County are going to have a hard time reading and understanding the wording in an insurance policy. It is also safe to say that experienced Insurance Law Attorneys will sometimes differ over the proper interpretation of the words in a policy.
The United States Fifth Circuit issued an opinion in a case in 1999, where the parties were arguing over the correct interpretation of a portion of an insurance policy. The style of the case is, Matador Petroleum Corp. v. St. Paul Surplus Lines Insurance Company. Here are some of the facts.
St. Paul provided Matador with insurance coverage pursuant to an oil and gas commercial general liability policy. The policy contained an absolute pollution exclusion clause. However, an endorsement provided a narrow exception stating that the pollution exclusion would not apply in the event of a “covered pollution incident.” A covered incident was a discharge, release, etc., that begins and ends within 72 hours, does not result from a well out-of-control, is known to you (Matador) or your operating partner within 7 days of its beginning and is reported to the company within 30 days of its beginning. In March 1994, a drilling bit collapsed in a well owned in part by Matador. The collapse caused a discharge of pollutants that fed onto adjacent property and waterways. Matador reported the incident to St. Paul’s agent 38 days after the incident occurred and requested coverage under the policy for damages claimed by landowners. After investigating the claim, St. Paul declined the request for coverage and informed Matador that St. Paul would not provide a defense or indemnity.
Matador filed suit in Texas state court for damages and expenses incurred in defending against the claims. St. Paul removed the case to federal district court based on diversity. St. Paul argued that it properly denied coverage because Matador failed to report the pollution incident within 30 days as required by the endorsement. The district court agreed and granted summary judgment. Matador appealed.
Here is what the court said;
Judgment in favor of carrier is affirmed. The provision requiring that the incident be reported within 30 days is not ambiguous. The phrase “the company” did not mean Matador, it meant the carrier. When interpreted with the other phrase, “is known to you or your operating partner within 7 days …”. is clear that notice had to be given to St. Paul within 30 days. Read as a whole, the policy unambiguously shows that Matador and St. Paul intended “the company” to mean the insurer and not the insured.
The requirement that notice be given within 30 days does not require a demonstration that St. Paul suffered a prejudice as a result of Matador’s untimely notice. The Fifth Circuit analyzed the distinctions between “occurrence” and “claims made” policies and the notice requirements in each type of policy. In the case of an “occurrence” policy, any notice requirement is subsidiary to the event that triggers the coverage. In that case, the company may not deny coverage on the basis of untimely notice unless the company shows actual prejudice from the delay. In the case of a “claims made” policy, however, notice itself constitutes the event that triggers the coverage. Courts strictly interpret notice provisions in a “claims made” policy. Prejudice is not required. In this case, this policy has characteristics of both an “occurrence” and a “claims made” policy. However, the basic insurance policy between Matador and St. Paul did not include coverage for pollution. The Court noted that an extension of the notice period would expand the coverage and expose St. Paul to broader risks that originally envisioned. In addition, both St. Paul and Matador were sophisticated commercial parties with comparable bargaining power. Therefore, there is no reason to apply the prejudice requirement.
– The lesson taken from this case is noting the difference between “occurrence” policies and “claims made” policies.
Also, to be sure and get an experienced Insurance Law Attorney to look at the policy and be informed of the facts of the claim. Then a thoughtful opinion can be given as to the possible outcome of the case.
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