In Nicholas Petroleum, Inc. v. Mid-Continent Casualty Co., the Fifth Court of Appeals of Texas affirmed summary judgment in favor of an insurer on a claim for which untimely notice was provided. No. 05-13-01106-CV, 2015 WL 4456185 (Tex. App. July 21, 2015), *6. The court concluded that the insurer, without making any showing of prejudice, could deny coverage based upon the untimely notice of a claim under a claims-made policy. Id. at *1, 6.
The policies at issue in Nicholas Petroleum were two claims-made policies that provided a gas station with “coverage for its underground storage tanks.” Id. at *1. Specifically, the policies covered “release(s) from scheduled Storage Tank System(s) commencing after the Retroactive Date which result in Bodily Injury or Property Damage.” Id. (quoting insuring agreement). The policies provided coverage for the periods of September 17, 2007 to September 17, 2008 and September 17, 2008 to September 17, 2009. Id. The policies included a condition precedent that, in the event of a claim, “the Policyholder shall give us written notice as soon as possible but in any event no later than thirty (30) days after receipt of the Claim by the Policyholder.” Id.
On August 4, 2008, the owners of the property next to the policyholder sued the policyholder for the “migration of off-site contamination onto its property.” Id. at *2 (quoting petition). In addition, the Texas Commission on Environmental Quality (“TCEQ”) notified the gas station of potential contamination in August 2006, sent additional letters in 2007, and, in August 2008, pursued an investigation against the policyholder related to a potential leak. Id.
Following the investigation, the TCEQ sent a letter to the policyholder in February 2009. Id. at *2. “Approximately two months later,” the policyholder notified the insurer of the suit by the neighboring property. Id. The insurer denied coverage because, among other reasons, the policyholder did not notify it of the claim within 30 days. Id. Insurance coverage litigation followed.
In the coverage litigation, the insurer moved for summary judgment twice before the trial court. Id.at *3. On the second motion for summary judgment, the insurer argued, among other things, that it should be granted summary judgment because the policyholder “failed to provide the required notice of a claim.” Id. The trial court granted the insurer summary judgment without specifying the grounds for its order. Id.
The appellate court limited its review to the late notice arguments because it could resolve the appeal on those grounds alone. Id. at *3. The policyholder argued that it first received notice of the claim based upon the February 5, 2009 TCEQ letter; before that, the policyholder was not aware that it was the responsible party for the alleged contamination at the neighboring property site. Id. at *4. Even assuming the policyholder did not receive notice until February 5, 2009, the policyholder admitted that it still provided notice beyond the 30-day requirement in the policy. Id. Nonetheless, the policyholder argued summary judgment was inappropriate because the insurer could not deny coverage absent a showing of prejudice. Id. at *1, 4. The insurer disagreed, asserting that “it was not required to establish prejudice before denying coverage.” Id. at *4.
The court agreed with the insurer. No showing of prejudice was required. Id. at *5-6. The court concluded that it would “neither ignore the plain language of the policy which required [the policyholder] to comply with the notice provision as a condition precedent to coverage nor read into the policy language requiring [the insurer] to establish it was prejudiced by [the policyholder’s] failure to comply.” Id. at *6. Accordingly, the court affirmed summary judgment in favor of the insurer. Id.
To reach this conclusion, the court needed to address Prodigy Communications Corp. v. Agriculture Excess & Surplus Insurance Co., 288 S.W.3d 374, 375 (Tex. 2009), a late notice case from the Texas Supreme Court that required an insurer to show prejudice before denying coverage. Id. at *4-5. The court readily distinguished Prodigy. Id. at *5. Unlike in this case, the policyholder in Prodigy provided notice within the specified period; the only issue before the court was whether the policyholder had provided notice “as soon as practicable.” Id. The court inProdigy concluded that a showing of prejudice was required for noncompliance with the “as soon as practicable” policy term. Id. The court there “did not consider whether an insurer must show prejudice before denying coverage when an insured fails to provide notice under a claims-made policy that include a specific time-frame for providing written notice.” Id. Thus, the court concluded Prodigy was distinguishable.
The Nicholas Petroleum decision should provide clarity to insurers as to the circumstances where an insurer can, under Texas law, deny coverage for late notice without concern for whether a showing of prejudice will be required.