Two-Year Notice Delay Not Enough To Avoid Coverage:

10th Cir. applying Kansas law finds insurer must demonstrate “substantial prejudice.”

The Tenth Circuit reversed an earlier win for Lexington Insurance Co., finding the insurer was still potentially on the hook for $7.5 million in damages to a salt mine, even though its policyholder reported water streaming into the mine two years after the problem was actually found.  The court found that, while Lyons Salt Co. may have waited too long to notify its insurer of the problem, that fact alone does not absolve Lexington of its coverage obligations.  Lexington argued that through the two-year delay, it lost the opportunity to investigate the problem on its own and participate in remediation.  But the court found instead that to demonstrate prejudice, the insurer must demonstrate that it would have handled the problem differently.  “Because Lexington presented no evidence of actual prejudice, it was not entitled to summary judgment…the plaintiffs’ delay would only relieve Lexington of coverage if it proved substantial prejudice.”  The court reversed the summary judgment ruling and remanded the suit to district court for further proceedings.  The case is B.S.C. Holding, Inc. v. Lexington Ins. Co., 2014 WL 929194 (10th Cir. (Kan.) March 11, 2014).

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