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Settoon, Starr and Beyond

By C. Austin Holliday and Seth A. Schmeeckle
October 29, 2013

The vast majority of jurisdictions do not enforce strict compliance with a policy's notice provisions unless the insurer was prejudiced by the insured's failure to timely report a covered event. That general rule is not without exception, however. A pair of recent decisions by the U.S. Court of Appeals for the Fifth Circuit shows that an exception to this general rule in the context of notice provisions located in pollution buyback clauses is slowly gaining momentum, even in jurisdictions that traditionally require an insurer to show it was prejudiced by the insured's delay. Both recent decisions, Starr Indem. & Liab. Co. v. SGS Petroleum Serv. Corp., 719 F.3d 700 (5th Cir. 2013), and In re Matter of Complaint of Settoon Towing, L.L.C., 720 F.3d 268 (5th Cir. 2013), draw heavily on the Fifth Circuit's earlier decision in Matador Petroleum Corp. v. St. Paul Surplus Lines Ins. Co., 174 F.3d 653 (5th Cir. 1999).

In Matador, the Fifth Circuit, without regard to whether the insurer suffered any prejudice, applied Texas law to enforce strict compliance with a notice requirement contained in an exception to the policy's pollution exclusion. In Starr, the Fifth Circuit reaffirmed that Matador remained good law despite some potentially adverse post-Matador decisions by the Texas Supreme Court. And in Settoon, the Fifth Circuit went a step further. It applied the Matador logic and reasoning to a case involving Louisiana law, and concluded that the insurer was not required to show prejudice as a predicate to strict enforcement of the notice provision, even though Louisiana is traditionally a notice-prejudice jurisdiction.

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