Claims Made Policy's Notice Provision Enforced By Texas Appeals Court

Case: Nicholas Petroleum, Inc. v. Mid-Continent Casualty Co. Court of Appeals, Fifth District of Texas at Dallas No. 05-13-01106-CV

The Dallas District Appeals Court of Texas recently held an Insured to the plain language notice requirements of its policy. Nicholas Petroleum purchased Mid-Continent Pollution and Environmental Damage Policies for the periods September 2007 through September 2009. The Insured also alleged that Mid-Continent had issued it an earlier policy providing coverage for the period May 12, 2006 through May 12, 2007, but it could not provide a copy of the policy.

On May 10, 2006, the Texas Commission on Environmental Quality ("TCEQ") sent a letter to Nicholas advising that subsurface contamination related to its property had been reported. TCEQ requested Nicholas to investigate the matter. On August 2, 2006, Nicholas was contacted by an attorney for the owner of the neighboring building, who advised he had been engaged to pursue claims related to the owner's lost purchase contract because the buyer backed out due to the discovery of contamination during a pre-sale inspection.

On August 23, 2006, the TCEQ sent yet another letter advising Nicholas to consult with a registered environmental consulting firm regarding the purported contamination. Similar letters were sent in July and September 2007, as well as February and July 2008. Nicholas did not respond to these letters, nor did it respond to the neighboring owner's demands.

In August 2008, the neighboring owner finally filed suit against Nicholas for damages caused by alleged migration of off-site contamination onto its property.

In September 2008, the TCEQ investigated reports of gas on the property, and determined that there was a leak in a super unleaded line. The leak was repaired in October 2008. The TCEQ directed Nicholas to contact a correction action specialist to assess the extent of contamination and submit a release report. The report issued verified the presence of contaminating chemicals, and the TCEQ again wrote Nicholas on February 5, 2009 advising of the chemical release. According to Nicholas, this was the first time it was formally notified of a release as defined under the policy. Approximately two months later, on April 10, 2009, Nicholas finally notified Mid-Continent of the litigation with the neighboring owner. Mid-Continent denied coverage based on its insured's failure to notify it of the claim within 30 days as required by the policy, as well...