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Late Notice Fatally Contaminates Environmental Coverage Claim

In Canton Drop Forge, Inc. v. Travelers Cas. & Sur. Co., 2021 U.S. Dist. LEXIS 45535, at *1 (N.D. Ohio Mar. 11, 2021), the U.S. District Court for the Northern District of Ohio recently held that the issues of notice and prejudice under an insurance policy can be determined as a matter of law, dismissing claims for environmental cleanup costs. Plaintiff Canton Drop Forge, a manufacturing company, sought to recover $8.1 million under a series of insurance policies issued by Travelers Casualty & Surety Company and its predecessors over a period of 40 years. The court granted summary judgment in favor of Travelers, holding CDF breached the policy terms by failing to provide reasonable notice of its claim, resulting in significant prejudice to the insurer.
Beginning in the 1940s, CDF operated an engineered wastewater recycling and disposal system which included retention basins known as “ponds.” Oil recovered from the manufacturing process was recycled or disposed in the ponds for decades. During the 1990s, CDF engaged a series of environmental consultants to assess the site and evaluate the associated risks. In addition, throughout the decades of operation, both the USEPA and Ohio EPA inspected the CDF property for compliance with environmental laws. By 2012 and 2013, the government agencies identified the ponds as a potential contamination risk and issued a Notice of Violation under the Resource Conservation and Recovery Act. From January 13 through the summer of 2015, CDF and its lawyers engaged in negotiations with USEPA and OEOA to resolve the Notice of Violation and tis potential liability. CDF ultimately settled with the agencies, entering a Consent Agreement and Final Order in September 2014 “to completely remove waste materials” from the ponds. CDF spent approximately $8 million to comply with the government mandates. More than a year after the settlement, CDF first tendered a claim for coverage to Travelers. After an investigation, Travelers denied the claim on the grounds that CDF had breached the policy provisions and CDF was not entitled to coverage. In response, CDF filed a declaratory judgment action against Travelers.

Given that CDF waited until almost 4 years after the USEPA issued the Notice of Violation, the court held “CDF’s notice to Travelers was not immediate nor was it provided within a reasonable time under the circumstances.” In light of the failure to provide notice, the court next examined whether Travelers was prejudiced. Under Ohio law, where there is unreasonable notice, there is a presumption of prejudice. Further, in Ormet Primary Aluminum Corp. v. Employers Ins. of Wausau, 88 Ohio St.3d 292 (2000), the Ohio Supreme Court held it was not necessary to inquire whether the insured presented evidence to rebut the presumption of prejudice because reasonable minds could only determine the insurer suffered actual prejudice. In this case, CDF negotiated and entered into the settlement without notice or consent from Travelers. Travelers therefore had no opportunity to participate in the defense or resolution of the environmental claims. Accordingly, as in Ormet, reasonable minds could only conclude the insurer suffered prejudice. The court granted Travelers’ motion for summary judgment and dismissed CDF’s claims with prejudice.

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