Applying Louisiana law, a recent federal court decision exemplifies why policyholders should thoroughly read claims-made policies to understand when notice is due to insurers and truthfully complete policy applications. In Admiral Insurance Company v. Dual Trucking, Inc.,1 the Court determined the insurer, Admiral Insurance Company (“AIC”), owed no duty to defend or indemnify Dual Trucking and Transport, LLC (“DTT”), Dual Trucking of Montana, LLC (“DTM”), and Dual Trucking, Inc. (“DTI”) (collectively, the “Dual Entities”) under two Environmental Impairment Liability Policies (“EIL Policies”) and four Contractor Pollution Liability Policies (“CPL Policies”). The Court justified its decision because the Dual Entities: 1) did not give notice during the 2012-2013 EIL Policy period; 2) had discovered or knew of, but did not disclose, potential pollution conditions before the inception of the 2013-2014 EIL Policy and before the expiration of the extended reporting period of the 2012-2013 EIL Policy; 3) failed to provide AIC with notice during the extended reporting period of the 2013-2014 EIL Policy of claims for which the Dual Entities were seeking coverage; and 4) materially misrepresented known facts on the CPL Policy applications.
I. Factual Background.
The Dual Entities were Louisiana-based companies that provided oilfield equipment rental services. In 2011, the Dual Entities leased land in Montana under three leases, collectively referred to as “the Bainville site.” Shortly afterward, the Dual Entities applied for, and AIC issued, an EIL Policy and two CPL Policies with a policy period of October 1, 2012, to October 1, 2013. AIC renewed all three policies for the October 1, 2013, to October 1, 2014, policy period.
The Dual Entities ran into their first issue on September 17, 2012 (prior to the inception of the 2012-2013 policies), when the Montana Department of Environmental Quality (“DEQ”) issued a warning letter stating that Montana DEQ had received a complaint alleging that, as a result of oil field exploration, production waste had been placed on the leased land by the Dual Entities without a license. Throughout 2013 and 2014, the principal manager of DTM, managing member of DTT, and an officer of DTI, Anthony Alfred, received a total of six violation letters from the Montana DEQ that were not reported to AIC during either the 2012-2013 or 2013-2014 policy periods.2
On July 1, 2014, DTT canceled the 2013-2014 EIL Policy. The 2013-2014 EIL Policy provided a 30-day Automatic Extended Reporting Period (“ERP”). A day later, on July 2, 2014, DTT, seeking coverage under the 2012-2013 EIL Policy, provided AIC with a Notice of Claim indicating the “date of occurrence” was July 5, 2013. DTT attached the sixth violation letter to the Notice of Claim. The violation letter referenced a December 13, 2013, admission by DTT that DTT had three suspected or known waste or stormwater releases at the Bainville Site. On July 3, 2014, DTI gave AIC a Notice of Claim asserting the same claim as the claim identified in DTT’s Notice.
On November 25, 2014 (after the 2013-2014 policy had been canceled and the 30-day ERP had expired), the Montana DEQ filed suit against DTT, alleging that DTT, operated an unlicensed Solid Waste Management Facility at the Bainville site from July 26, 2012, until April 30, 2014. In 2015, the Bainville site property owner sued, alleging the Dual Entities had operated an unlicensed Waste Management Facility on the Bainville site and had caused or allowed pollutants to remain onsite and mitigate off-site to surrounding properties. AIC initially provided a defense to the Dual Entities against the two suits under the 2013–2014 EIL Policy because some of the allegations in the two actions could relate to the July 2013 stormwater releases for which the Notices of Claims were given. Later, AIC filed a declaratory action and moved for partial summary judgment seeking a ruling that AIC had no duty to defend or indemnify the Dual Entities under the six policies.
II. The Court’s Analysis.
The Court first considered coverage under the 2012-2013 EIL Policy, which provided coverage for certain pollution conditions only if the pollution condition was “Discovered and reported to [AIC] during the Policy Period, the Automatic Extended Reporting Period or the Optional Extended Reporting Period, if any.”3 Applying Louisiana law, the Court found the unambiguous policy terms provided coverage under the 2012-2013 EIL Policy only if the Dual Entities’ claim was “Discovered and reported” within the applicable reporting period. Though the July 5, 2013 stormwater releases “occurred” during the 2012-2013 EIL policy, the Dual Entities did not give notice until July 2 and July 3, 2014, i.e., during the 2013-2014 EIL Policies. Moreover, the Dual Entities failed to provide any evidence disputing AIC’s assertion that no notice was received during the 2012-2013 EIL Policy period, nor did the Dual Entities dispute that AIC’s failure to receive notice eliminated coverage under the terms of the 2012-2013 EIL Policy. Thus, the Court found that AIC had no duty to defend the Dual Entities for Claims arising under the 2012-2013 EIL Policy.
Next, the Court looked to the 2013-2014 EIL Policy’s 30-day ERP because the Dual Entities canceled the 2013-2014 EIL Policy and then provided AIC with Notices of Claims immediately thereafter. In relevant part, the 30-day ERP provided the “Automatic Extended Reporting Period shall apply to Claims4 first made within the Automatic Extended Reporting Period but only with respect to Pollution Conditions that (a) are Discovered and reported during the Automatic Extended Reporting Period.”5 The 2013-2014 EIL Policy defined “Discovered” to mean “the point in time at which any officer, director, executive or employee responsible for environmental compliance of an Insured becomes aware of the existence of a Pollution Condition.”6
The Court found no coverage existed under the 2013-2014 EIL Policy because the Dual Entities, through Mr. Alfred, had known of the alleged Pollution Condition (the July 5, 2013 stormwater releases) before the 2013-2014 EIL Policy’s inception and before the 30-day ERP; thus, the Pollution Condition was not Discovered during the ERP. Further, coverage under the 2013-2014 EIL Policy for the two Claims against the Dual Entities, i.e., the two suits, was barred because the Dual Entities failed to give notice to AIC during the ERP of the policy for these Claims (nor could they have, as both suits were filed after
the expiration of the 30-day ERP).
Finally, the Court addressed whether coverage was afforded under the four CPL policies. The CPL policies stated AIC’s duty to defend or indemnify “shall immediately terminate . . . [i]f the application . . . contains any material misrepresentation of fact.”7 One of the questions asked on the CPL policy application was whether, in the past three years, any member of the Dual Entities was “aware of any circumstances that could result in a claim, suit or notice of incident being brought against them?”8 The Dual Entities responded “no” in each application and failed to provide AIC with any of the Montana DEQ letters or the property owner’s breach of contract letter. Accordingly, the Court found that the CPL policies were void ab initio (from the beginning). Any duties AIC owed to the Dual Entities under the four CPL policies were terminated by reason of material misstatements by the Dual Entities in the CPL applications.
The Court granted AIC’s motion for partial summary judgment that AIC had no duty to defend or indemnify the Dual Entities under any of the policies for the suits brought against them by the Montana DEQ and Bainville site property owner.
This case illustrates both the risks of failing to honestly represent known facts in completing applications for coverage and failing to give timely notice under claims-made policies. Failure to do either can result in forfeiture of coverage. To avoid a similar outcome from occurring, policyholders should truthfully complete policy applications and thoroughly review claims-made policies to understand when notice to the insurer is required.
For more information, contact Melanie A. McDonald at MMcDonald@sdvlaw.com*
*Special thank you to Kyle Rudolph, SDV Law Clerk, for contributing to this Case Alert.
1Admiral Ins. Co. v. Dual Trucking Inc., CV-20-53-GF-BMM, 2021 WL 1788681 (D. Mont. May 5, 2012), appeal filed,
No. 21-35433 (9th Cir. June 4, 2021).
2Also, the landlord sent Mr. Alfred and DTM a breach of contract letter on September 25, 2013, alleging the Dual Entities had “caused environmental impairment to the [p]roperty” and had “used the property in a manner that has caused pollution of waterways following through or underneath the property.” See id. at *3.
3Id. at *6.
4Italicized and capitalized terms were defined in the policy.
5Id. at *4 (emphasis in original).
6Id. (emphasis in original).
7Id. at *9