On February 13, 2020, a Texas federal court granted summary judgment in favor of coverage, finding the policyholder provided sufficient notice to its insurer of a potential claim for damages caused by allegedly contaminated proppant used at a well site in west Texas. See Evanston Insurance Company v. OPF Enterprises, LLC, Civil Action No. 4:17-CV-2048 (S.D.T.X. Feb. 13, 2020) (Dkt. No. 51) . The Court found that the policyholder’s notice of a potential claim was effective when provided to the insurer’s agent, even though it was not provided directly to the insurer itself.
OPF Enterprises, LLC, the insured, acted as a broker for the sale of proppant to Apache Corporation for use in fracking operations in West Texas. In February 2017, Apache notified OPF that the proppant was contaminated and had caused damages to pumps and valves, as well as downtime at the well site.
Evanston Insurance Company provided general liability coverage and professional liability coverage to OPF under successive one-year policies that were otherwise identical. The 2016 Policy ran from March 20, 2016 to March 20, 2017, and the 2017 Policy ran from March 20, 2017 to March 20, 2018.
Shortly before the end of the 2016 Policy period, on March 1, 2017, OPF notified its insurance agent, Porter Insurance Agency, Inc., of a potential claim against it by Apache. In turn, on March 3, 2017, Porter forwarded the notice of potential claim to AmWINS Brokerage of Texas, LLC. AmWINS, an insurance broker, did not send the notice of potential claim to Evanston. On March 20, 2017, the 2016 Policy period ended and the 2017 Policy period began.
A few days later, in early April 2017, Apache sent a formal Demand Letter to OPF claiming approximately $1.54 million in damages due to the contaminated proppant. Porter sent the Demand Letter to AmWINS on April 6, and AmWINS forwarded the Demand Letter to Evanston on April 7.
Evanston filed suit, seeking a declaration that it had no duty to defend or indemnify OPF (1) under the 2016 Policy because the “claim” (the Demand Letter) was not made until after the policy period expired; or (2) under the 2017 Policy because the Insured’s knowledge that a claim was likely, prior to the inception of the 2017 Policy period, negated coverage.
Both the Professional Liability Coverage (Coverage A) and the Bodily Injury and Property Damages Liability Coverage (Coverage C.1) covered “claims first made against the Insured during the Policy period.” However, in addition to claims made during the Policy period, the Policy also contained a “Discovery Clause.” The Discovery Clause provided that if the insured provided written notice to the insurer of an event reasonably expected to result in a claim, then a claim arising out of that event will be deemed “made” on the date the insured provided the notice.
The parties filed cross motions for summary judgment, with the only dispute being whether the March 3 notice of a potential claim (that was delivered to AmWINS but not Evanston) was sufficient notice to invoke the Discovery Clause under the 2016 Policy. Evanston argued that the Discovery Clause was not triggered because it was never provided with that notice of a potential claim, and AmWINS was not authorized to accept such notice as Evanston’s agent. Conversely, OPF argued that AmWINS’s receipt of the March 3 notice triggered the Discovery Clause because AmWINS was authorized to accept such notice as Evanston’s agent.
The Court first analyzed the text of the Discovery Clause, holding that it did not require notice of a potential claim directly to Evanston; notice through an agent was permissible. The Court next analyzed whether AmWINS was in fact Evanston’s agent with authority to accept notice on behalf of Evanston. The Court noted that while an insurance broker like AmWINS is generally considered an agent of the insured, there are circumstances in which an insurance broker can act as a dual agent for both the insured and the insurer. The Court found that AmWINS was Evanston’s agent because the written “Producer Agreement” between AmWINS and Evanston provided AmWINS with various express authority to act on Evanston’s behalf in certain circumstances (for example, “to effect, issue, countersign and deliver such policies” authorized by Evanston).
As for whether accepting notice from an insured was within AmWINS’s scope of authority from Evanston, the Court focused on the Producer Agreement’s provision that AmWINS was contractually obligated to “immediately notify the Company of all claims, suits, and notices.” The Court held that such language granted AmWINS authority to “receive” notices on Evanston’s behalf, and therefore also the implied authority to “accept” notices on Evanston’s behalf. Because the Court found AmWINS to be an agent of Evanston, and that accepting notices was within the scope of AmWINS’s authority under the Producer Agreement, the Court held that the March 3 notice of potential claim was an effective notice to trigger the Discovery Clause. Accordingly, the Court denied Evanston’s motion for summary judgment, and granted OPF’s motion.
The summary judgment order in OPF Enterprises is an important reminder for policyholders to pay close attention to their policy’s notice provisions, especially when key events occur around the time that one policy period ends and another begins. To help mitigate being caught between successive claims-made policy periods, policyholders should consider including extended reporting provisions or other liberalizing language that avoids a forfeiture of coverage due to an oversight or misstep in the claim notification process. Finally, the order also serves as a reminder that, in certain circumstances, brokers act in a dual capacity, both as agent of the insured and the insurer.