Miguel Rodriguez | Carlton Fields
The Eleventh Circuit Court of Appeals affirmed summary judgment in favor of Nautilus Insurance Co. in L. Squared Industries Inc. v. Nautilus Insurance Co., holding that an insured’s failure to provide timely notice of a pollution condition under a claims-made policy barred coverage when the insured could not rebut the presumption of prejudice to Nautilus.
L. Squared Industries Inc. owns and operates gas stations in Florida. In July 2018, the company purchased storage tank liability insurance from Nautilus Insurance Co., a surplus lines insurer. The policy covered cleanup costs at the company’s St. Augustine, Florida, location for pollution conditions arising from underground storage tank discharges and contained the following reporting provisions:
You must see to it that we are notified as soon as reasonably possible, but in any event, not more than seven (7) days after the insured first became aware of, or should have become aware of a pollution condition which may result in a claim or any action or proceeding to impose an obligation on the insured for cleanup costs.
In August 2018, L. Squared’s environmental consultant identified groundwater contamination near the St. Augustine gas station. Despite receiving that report, L. Squared did not notify Nautilus until April 2019 — eight months later. Nautilus denied coverage, citing the policy’s strict seven-day notice requirement.
L. Squared sued Nautilus in Florida state court, alleging breach of contract and seeking declaratory relief. The case was removed to federal court, where the U.S. District Court for the Middle District of Florida granted summary judgment for Nautilus. The court found L. Squared’s delay in providing notice absolved Nautilus of any duty to defend or indemnify.
On appeal, the Eleventh Circuit affirmed the judgment in favor of Nautilus and clarified the applicable legal framework. The court explained that the Nautilus policy contained two separate notice requirements common in claims-made policies: (1) a requirement that the pollution condition be reported during the policy period (i.e., the claims-made requirement); and (2) a requirement that the insured provide prompt notice — within seven days — after discovering a pollution condition. The court held that L. Squared satisfied the first requirement by reporting the claim within the policy period but breached the second condition by waiting eight months after discovery to provide notice under the policy.
The court’s reasoning did not end there, however. The Eleventh Circuit noted that, under the majority rule followed by many jurisdictions, late notice under a claims-made policy does not automatically bar coverage if notice is still given within the policy period. Instead, the insurer must show that it was prejudiced by the delay.
Before L. Squared, Florida courts had not yet addressed this particular issue. The Eleventh Circuit explained that “[w]here there is an absence of state-law precedent in a diversity case like this one, [the court will] presume that the state courts would adopt the majority view on a legal issue in the absence of indications to the contrary.” Here, the Eleventh Circuit predicted that a Florida state court would adopt the notice-prejudice rule in this context and referred to the Florida Supreme Court’s decision in Bankers Insurance Co. v. Macias, which presumes prejudice from untimely notice but allows the insured to rebut the presumption with evidence showing the insurer was not prejudiced. The court found L. Squared did not present sufficient evidence, at summary judgment or in its motion for reconsideration, to rebut the presumption of prejudice. Accordingly, the court upheld Nautilus’ denial of coverage.
This opinion clarifies the applicable standard in Florida under a claims-made policy that also requires claims to be reported within a fixed period. Under this standard, insurers can rely on the presumption of prejudice when notice is delayed but should be prepared to document the prejudice caused by late reporting.
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