A District Court in the United States (D. New Hampshire) (“Court”) dealt in an October 13 Memorandum and Order (“Order”) with a matter arising from a third party liability insurance policy relating to tanks storage. See TRT Development Company, Inc., et al. vs. American Insurance Company ACE, 2021 WL 4777240.
The issue considered was whether the insured’s failure to report an oil spill to the insurance company within the required timeframe constituted grounds for denial of coverage.
The Omni Mount Washington Hotel (“Hotel”) in Bretton Woods, New Hampshire (TRT Development Company, Inc. and Omni Mount Washington, LLC [collectively “TRT”]), purchased an ACE US Insurance Company (“ACE”) Storage Tank Liability Insurance Policy (“policy”) in 2017. The policy covered the aboveground fuel storage tank for 25 000 gallons (“tank”) from the hotel. Coverage was in effect from December 7, 2017 to December 7, 2018.
Hotel staff reportedly identified on May 26, 2018:
. . . oil on the side of an embankment in a wooded area near the hotel boiler room, where the hotel’s above ground fuel storage tank was located.
Hotel staff reportedly promptly reported the discovery to the hotel’s environmental consultant. The consultant’s preliminary investigation determined that the contamination was caused by a release of fuel oil in the tank located in the hotel’s boiler room. On the same day, notification of the release was given to various government authorities. In addition, a regional emergency cleaning contractor was retained to immediately begin the cleaning and sanitation.
On June 20, 2018, TRT informed ACE of the storage tank incident. The policy was drafted on the basis of the complaints. However, both the insured and the insurance company agreed that this notification was within the time limit of the policy. In addition, ACE denied coverage for remediation costs due to TRT’s failure to notify ACE within seven days of discovery of the incident. The policy contained wording that stated:
The insured must ensure that the insurer receives written notice of any storage tank claim or incident as soon as possible, but in no case more than seven (7) days after a responsible insured becomes aware of it. or should have become aware of such a complaint or storage tank incident.
The Court noted that the parties agreed that the storage tank incident was otherwise eligible for coverage under the policy. In addition, the parties would have agreed that ACE was not prejudiced by TRT’s two-week delay in reporting the incident.
The Court said the issue to be considered was whether New Hampshire law requires an insurer to demonstrate injury resulting from late notice in order to deny coverage in the circumstances described above. He noted that the New Hampshire Supreme Court had not addressed this issue directly. However, he determined that what he described as “very analogous cases and convincing authorities from other jurisdictions” persuaded him to apply what is called the “notice-harm” rule.
In analyzing the question, the Court first distinguishes an accident insurance policy from that which is taken out on the basis of claims. Incident policies provide coverage for claims:
. . . on the basis of an event occurring during the term of the policy, whether the claim or the event itself is brought to the attention of the insured or brought to the attention of the insurer during the term of the policy.
The stated purpose of requiring prompt notice of claim with such policies is characterized as providing:
. . . the insurer has an adequate opportunity to investigate, prevent fraud and taxation against him, and form an intelligent estimate of his rights and obligations before he is forced to pay.
Contrasted is an indemnity policy in which the insured event is stated to include a combination of two requirements:
- the claim must be made against the insured by a third party, or a covered loss must be discovered by the insured, during the term of the policy; and
- the claim or loss must be reported to the insurer within the same period of insurance.
In addition, the incident giving rise to a complaint:
- may occur before the start of the insurance period
- the trigger for the cover is the discovery and the declaration of a loss during this period
Therefore, the Court said that notice to the insurer within the policy period “is essential in determining whether coverage exists” under a claims policy.
The decree mentions that claims policies are generally less expensive than accident policies because the insurer can “close his books” on a policy when it expires. As a result, the insurer can achieve a level of predictability that may be unattainable under standard insurance policies.
The Court referred to decisions of the New Hampshire Supreme Court and noted that in the case of an incident policy, it was held that prejudice must be shown to deny coverage in the event of a notice untimely complaint. However, a demonstration of harm is not required to deny coverage under a claims policy. However, the Court determined that despite the fact that the ACE policy was drafted on the basis of the claims, the facts in this case differ from the cited case of the New Hampshire Supreme Court. It is distinguished by the fact that although the Tank incident was not reported within seven days, notice was provided during the insurance period. Consequently, the Court considers that:
. . . requiring proof of harm would defeat the purpose of a claims-based policy by allowing claims reported outside the policy period – this does not exist here.
In other words, ACE was deemed not to have “closed the books” on the policy yet, as it was still in effect when it was reported to the insurance company. As a result, the court ruled that the late notice excuse would not rewrite a fundamental clause in the insurance contract and would not expand coverage.
Decisions from other jurisdictions are cited in support of this conclusion.
The Court determined that the New Hampshire Supreme Court would hold, consistent with decisions of other jurisdictions, that the prejudicial opinion rule applies when an insured declares a claim under an indemnity policy during period of insurance but fails to provide notice within the time limit. specified in a notice of complaint provision. TRT reported the Tank incident during the policy period. Therefore, ACE was found not harmed by the two week reporting deadline and ACE was found unable to deny coverage.
A copy of the notice can be downloaded here.