In its recent decision Webb Operating Co. v. Zurich American Ins. Co., 2011 U.S. Dist. LEXIS 73675 (E.D.Mich. July 8, 2011), the United States District Court for the Eastern District of Michigan had occasion to consider whether an insured under a series of consecutive claims made and reported underground storage tank policies was entitled to coverage for remediation costs where it failed to report the “claim” during the proper policy period.
The policies at issue insured a gas station operated by the insured for cleanup costs as required by governmental authorities resulting from releases from covered underground storage tanks, but only to the extent discovered during the policy period and only to the extent the “claim” was reported to Zurich during the policy period. The relevant policy defined “claim” as notice given by the insured, during the “policy period” seeking payment of “cleanup costs” required by a “governmental authority.” The preamble to the policies expressly identified the policies as “claims made and reported” policies.
During the period the insured’s 2005-2006 policy was in effect, one of its covered underground storage tanks failed a tank tightness test. The insured subsequently decided to close its tank, but chose not to report the matter to Zurich at the time because the costs associated with the tank closure barely exceeded the policy’s deductible. The insured, however, continued to incur monitoring and remediation costs over the next three years, ultimately leading to its decision to give notice to Zurich when its policy for the 2009-2010 period was in effect. The insured argued that coverage should be afforded under the 05-06 policy, or at the very least, under the 09-10 policy, since that was when it gave notice of claim. Among other things, the insured argued that Zurich could not disclaim coverage under the 05-06 policy unless it could show it had been prejudiced as a result of the insured’s delayed notice.
The court rejected the insured’s prejudice argument, explaining that prejudice is a consideration only with respect to occurrence-based policies, not claims made and reported policies. Because the Zurich policies were claims made and reported policies, wrote the court, Zurich was not required to show that it was prejudiced under the 05-06 policy in order to disclaim coverage. Rather, Zurich only needed to show that the insured failed to comply with the policy’s condition precedent to coverage; namely, giving notice of “claim” during the same policy period in which the release was first discovered. The court concluded for the same reason that coverage was unavailable under the 09-10 policy since the release was not first discovered during the time that policy was in effect.