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In re In re Texas E. Transmission Corp. PCB Contamination Ins. Coverage Litig.

ELR Citation: 25 ELR 21111
Nos. No. 92-1638, 15 F.3d 1249/(3d Cir., 01/10/1994) Prejudice from late notice affirmed

The court holds that comprehensive general liability insurance carriers do not have to pay their insured for damages associated with the insured's discharge of polychlorinated biphenyl-laden oils into the environment. The district court held that the insured's duty to inform the carriers of an occurrence triggering coverage accrued not later than December 1986; however, the insured did not provide notice of its claim to the carriers until August 1987. In the interim, the insured had entered into at least one consent decree and actively negotiated with the U.S. Environmental Protection Agency (EPA) regarding cleanup of the contamination. The court first holds that a standard somewhat lower than "substantial prejudice" and closer to a concept of permitting carriers to deny coverage when there is evidence of a change in position adverse to a carrier's interest applied to determine what constitutes prejudice to an insurer under Texas law. The court notes that although the change must be material under this standard, the carrier need not show that the change is irreversible to demonstrate that prejudice resulted. Aplying this standard, the court holds that the undisputed facts indicate prejudice resulting from a material change in the carrier's bargaining position. By the time the insured notified the carriers, they had lost an opportunity to participate initially in remedial efforts, testing, monitoring, and establishing schedules and methodologies. Also, at least one day before it provided notice, the insured had disclosed its bargaining position to EPA by proposing to pay a substantial civil penalty and to undertake an extensive voluntary cleanup. The court notes that because these changes prejudiced the carriers, it need not address whether the insured's waiver of rights against the United States and renewal of its insurance contracts before notifying the carriers also prejudiced them. The court rejects the insured's argument that there was no prejudice because there was no "done deal" between the insured and EPA at the time the insured gave notice. The prejudice to the carriers flows from the insured's ex parte participation in its field investigations and negotiations. Moreover, prejudice resulted even though the option to enter negotiations was still available to the carriers. And the carriers did not have to show that they would have entered negotiations earlier and that they could have altered the outcome.

[A related decision in this litigation is published at 25 ELR 21102.]

Counsel for Appellant
Peter J. Nickles
Covington & Burling
1201 Pennsylvania Ave. NW, Washington DC 20044
(202) 662-6000

Counsel for Appellees
John C. Sullivan
Manta & Welge
One Commerce Sq.
2005 Market St., 37th Fl., Philadelphia PA 19103
(215) 851-6600

Before: MANSMANN, ALITO, and ALDISERT, Circuit Judges.