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A mechanical engineering firm cannot recover a pollution loss under its coverage because it filed its claim late, even though it was allegedly told by its insurer’s claims department to hold off filing a claim until a formal demand had been made, a federal appeals court said Tuesday in affirming a lower court ruling.
The appeals court said the poor advice allegedly given by the claims department cannot be used to justify coverage because a claims-made policy was involved.
Tecumseh, Nebraska-based Topp’s Mechanical Inc. bought a liability insurance policy from Richmond, Virginia-based Kinsale Insurance Co. that excluded pollution incidents unless it was discovered by TMI within seven days and reported to Kinsale within 45 days, according to the ruling by the 8th U.S. Circuit Court of Appeals in St. Louis in Topp’s Mechanical Inc. v. Kinsale Insurance Co.
During the coverage period, TMI learned an employee suffered an injury from a pollution incident, and a company representative called Kinsale within seven days, specifically asking if TMI should report it, according to the ruling.
“Some unidentified person in the Kinsale claims department told TMI that it could not yet report the incident as a claim and said it should wait until the employee filed a formal demand or lawsuit,” according to the ruling.
Nearly 18 months later, the injured employee made a formal demand, and Kinsale denied coverage. TMI sued Kinsale for breach of contract in U.S. District Court in Omaha, Nebraska, which ruled in the insurer’s favor.
The ruling was upheld by a three-judge appeals court panel. While TMI acknowledged it did not follow the policy’s plain language because it reported the incident in writing more than 45 days afterward, it said the court should rule in its favor because it was told to withhold reporting a claim until a formal demand was made or a lawsuit filed.
The appeals court panel said with a claims-made policy, notice of a claim “is not simply part of the insured’s duty to cooperate. It defines the limits of the insurer’s obligation — if there is no timely notice, there is no coverage,” the panel said in quoting an earlier case.
The ruling said cases that TMI cited to support its position involve occurrence, not claims made, policies.
Kinsale attorney Sina Bahadoran, an equity partner with Clyde & Co. in Miami, said in a statement, “We appreciate the Court’s reasoned treatment of this nuanced issue.”
TMI’s attorneys did not respond to requests for comment.