Violation of 30/90-Day “Accident” Notice Requirement Bars Coverage Despite No Prejudice

The United States District Court for the Middle District of Louisiana held that QBE Marine & Energy (“QBE”), a syndicate of Lloyd’s of London, was not liable for the cleanup costs its insured, Apollo Energy, LLC (“Apollo”), spent on an oil spill due to applicable pollution exclusion found in QBE’s CGL policy.

In 2016, one of Apollo’s oil wells caused an oil spill in Iberville Parish, Louisiana. Apollo proceeded to spend $143,643.64 in cleanup and remediation costs. Apollo reported the claim to QBE, and QBE denied coverage.

The insurer raised several arguments in support of its denial. First, QBE argued that oil was considered a pollutant under the CGL policy’s pollution exclusion. The pollution exclusion defined pollutant as “any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemical and waste.” Second, QBE argued that a buyback endorsement in the policy, which would have created an exception to the pollution exclusion if the occurrence was “accidental” and the “occurrence became known to the insured within 30 days after its commencement and is reported to the Company within 90 days thereafter,” did not apply because Apollo reported the claim one hundred and fifty-three days (153) after the spill.

In its Amended Complaint, however, Apollo asserted that the oil was not a pollutant because this type of oil spill is not considered a pollutant under 42 U.S.C. § 9601(14). Further, Apollo argued that missing the 90-day reporting timeline was not fatal because it did not prejudice QBE as the cleanup was timely performed.

The court, however, concluded that oil was a pollutant. It examined several cases where materials extracted from oil wells were considered pollutants under similar pollution exclusions. As a result, under the clear and unambiguous language of the policy, oil was a “liquid contaminant” or “chemical” which was a pollutant.

Next, the court held that Apollo’s failure to comply with the notice requirement barred the exception to the pollution exclusion. The court cited a Fifth Circuit decision that held that “where ‘immediate notice’ is an express condition precedent to coverage in the main body of the policy, ‘failure to comply with the provision precludes coverage’ and ‘prejudice need not enter the calculation.’” The court reasoned that the 90-day notice requirement was a condition precedent on the buyback, so violating the condition prevented the application of the exception to the pollution exclusion. As a result, the court determined that it did not need to entertain Apollo’s prejudice argument.

Ultimately, because the pollution exclusion applied without exception, QBE was not liable for the cleanup costs. Apollo Energy, LLC v. Certain Underwrites at Lloyd’s, London, No. 17-1741-JWD-RLB (M.D. La. May 1, 2019).