INSURANCE-RELATED COURT CASES
Digested from case reports published online
COURT DECISIONS
Late loss notification presumed to be prejudicial
An insured who experienced and paid for a loss also ended up losing its ability to be reimbursed. L Squared Industries, Incorporated (L Squared) was a company that owned and operated a number of Florida gas stations. Its business was insured by an underground storage tank (UST) liability policy. The insurance contract was issued by Nautilus Insurance Company (Nautilus). The liability policy provides protection for discharge incidents resulting in release of pollutants, including clean-up costs and defense expenses.
Litigation began between Nautilus and L Squared after Nautilus denied a request for reimbursement of costs from cleaning up and defending against a leaking underground storage tank. Nautilus based its denial due to L Squared’s failure to make a loss notification within the time required by the policy.
After the denial, L Squared sued Nautilus. The insurer filed a counter-motion asking for a finding that it had no obligation to provide coverage. The claims-made policy, issued with policy dates of July 18, 2018, to July 18, 2019, contained a loss notification provision. It required the policyholder to advise Nautilus of any incident that does or could likely result in a claim.
A demand involving clean-up costs was also considered to be a claim. The provision referenced that notification had to be made as soon as reasonably possible, subject to reporting no later than seven days from the point of awareness of the loss or potential loss.
A district court, relying on the notification language, determined that the provision requirements were breached. It ruled that Nautilus did not have to respond to nor defend the loss. L Squared appealed the decision.
First, some back story. In 1985, Exxon owned a gas station in St. Augustine now owned by L Squared. At that time, a petroleum hydrocarbon discharge was discovered. The State of Florida determined that the discharge qualified for the Florida Department of Environmental Protection’s (FDEP) reimbursement program and, in 1990, became eligible for remediation funding via the Early Detection Incentive (EDI) Program. In 2006, the tank system at the station was removed and replaced by the tank used today.
In May 2017, the FDEP conducted a site inspection of the gas station, then owned by L Squared. Results showed that certain components of its underground storage tank system were damaged and had “or could cause a discharge or release.” After hydrotesting and soil inspection, soil pollution was detected, indicating that a new discharge had occurred, unrelated to the event from 1985. The FDEP also requested that L Squared submit a Discharge Report Form, which was completed in March 2018. L Squared denied having additional testing done at this time.
In June 2018, L Squared replaced a fuel dispenser at the gas station and hired Taylor Environmental Consulting (Taylor) to conduct closure assessments. While running tests, Taylor discovered groundwater contamination that may have been related to either the 1985 or 2017 discharge. This assessment report was sent to the FDEP in August 2018, one month after the start of the liability policy with Nautilus. Taylor encouraged L Squared to conduct further testing previously requested by the FDEP.
L Squared declined the additional testing again, and did not notify Nautilus about the discharge until April 2019. The eight-month gap in notification resulted in the claim denial from Nautilus as well as the lower court’s ruling in favor of the insurer.
The higher court focused on two issues it believed should be reviewed in considering whether possible coverage existed for the polluting incident. First, it considered the fact of the claims made within the Nautilus policy’s requirements. In that regard, it held that L Squared reported the incident within the applicable policy period and it complied with that requirement. Second was the policy’s notification provision.
With regard to the eight-month reporting gap, the higher court’s view was that late reporting did not, by itself, disqualify the incident from the policy’s protection. What mattered was whether the late report was prejudicial (harmful) to Nautilus. However, that view became academic. The appellate court, while pointing out the importance of whether an act was prejudiced, it also recognized that L Squared failed to include that consideration in any of its arguments. Therefore, the court’s only option was to presume that the late report prejudiced the insurer’s rights. The lower court decision in favor of Nautilus was affirmed.
L Squared Industries, Inc. v. Nautilus Insurance Company—United States Court of Appeals, 11th Circuit—No. 23-13031—October 15, 2025.
