Late notice by petroleum transporter results in insurance coverage denial


In the matter of Starr Indem. & Liab. Co. v. SGS Petroleum Serv. Corp., Case No. 12-20545 (5th Cir. June 18, 2013), the U.S. Court of Appeals for the Fifth Circuit recently upheld their prior decision in Matador Petroleum Corp. v. St. Paul Surplus Lines Ins. Co., 174 F.3d 653 (5th Cir. 1999), allowing an insurance company to deny coverage to a petroleum transporter without a showing of prejudice after the transporter failed to comply with notice provisions specifically outlined in an insurance policy.

On November 7, 2010, an employee of SGS Petroleum Service Corporation, a transporter of toxic chemicals in the petrochemical industry, accidently released meta-toluene diamine while unloading the chemical at a plant in Baytown, Texas. Clean-up was initially estimated to cost between $600,000 and $1 million. Allianz Global Risks US Insurance Company carried a $2 million dollar primary insurance policy for the petroleum transporter, while Starr Indemnity & Liability carried an umbrella policy in excess of the primary policy. The excess policy with Starr included a “buy-back” provision, allowing coverage only to attach if a policyholder notified the insurance carrier within 30 days of discovery of a release. Following the release in Baytown, SGS failed to notify Starr because it believed the clean-up cost to be below the $2 million coverage limit for the primary policy. SGS later notified Starr on the 59th day after the release occurred when it determined cost of clean-up would be in excess of $4 million.

In a subsequent lawsuit between the parties, the district court ruled in Starr’s favor, noting the failure of SGS to inform the excess insurance carrier of the release within the required 30-day limit. The Fifth Circuit affirmed, relying on their decision in Matador, in which the court addressed the equal bargaining power of the parties and their equally sophisticated positions in the industry. Although it is unclear how the Texas Supreme Court will reconcile the progeny of Matador in the future, policyholders are encouraged to provide notice of any pollution incidents to excess insurance carriers regardless of estimated cost.


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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