“Prejudice Requirement” for Buy-Back Endorsement Affirmed in Kansas

Apr 27, 2018

Kansas court rejects U.S. Court of Appeals Fifth District rulings.

HDI Global Insurance Co. issued a general liability policy to PetroSantander (USA), Inc. that included “a limited pollution liability buy-back endorsement …”

According to an article in the Traub Lieberman Straus &Shrewsberry Insurance Law Blog, the policy provided “coverage for pollution incidents of a limited duration and only then when reported to HDI within 120 days after the incident first becomes known to the insured.”

PetroSantander notified its insurance broker within forty days of an incident but did not notify HDI until 141 days after the occurrence. HDI declined coverage based upon late notification.

PetroSantander then filed suit claiming the time limit was not enforceable because the late notice did not prejudice HDI’s legal rights. PetroSantander (USA), Inc. v. HDI Global Ins. Co., 2018 U.S. Dist. LEXUS 59696 (D. Kan. Apr. 9, 2018).

“At issue in the subsequent litigation was whether HDI needed to demonstrate prejudice as a result [of] receiving first notice three weeks after the expiration date of the reporting period.”

The Kansas Court applied Texas law in reaching its decision. In spite of the fact that Texas courts have traditionally been willing to consider the “prejudice requirement” when determining whether to enforce provisions “of occurrence based policies as well as for reporting within the policy period of a claims made and reported policy,” the U.S. Court of Appeals for the Fifth Circuit ruled in two separate decisions that prejudice was not relevant in cases based upon facts similar to those in the PetroSantander suit.

The Court “predicted” that the Texas would not have followed the rulings of the Fifth Circuit and ruled that the plaintiff was entitled to coverage because the defendant “failed to demonstrate any prejudice as a result of … receiving notice 141 days after the insured’s discovery of the pollution incident …”

Source—

Kansas Federal Court Applies Prejudice Requirement to Pollution Buy-Back Endorsement, Traub Lieberman Straus & Shrewsberry Insurance Law Blog, April 17, 2018.