Livia Properties II, LC.. v. Federal Ins. Co. et al.

Livia Properties II, LC.. v. Federal Ins. Co. et al.

Wayne Glaubinger and Hilary Henkind won summary judgment on behalf of Lexington Insurance Company in the United Stated District Court for the Western District of Virginia in a first-party property insurance case involving late notice and the pollution exclusion.

Lexington’s insured was a tenant in a building in Virginia. When the insured vacated the premises, it allegedly left the premises in a state of disrepair and also, because it used certain chemicals (polybutene or "PIB") in manufacturing processes, there was chemical residue throughout the premises. The landlord sued the insured tenant, but the insured never provided notice to Lexington.

Eventually, the landlord itself provided notice to Lexington, but it did so just weeks before it moved for summary judgment in the underlying case against the tenant. Although Lexington received such notice, Lexington was unaware that the insured was bankrupt and had no counsel representing it. Thus, the summary judgment in the underlying action went unopposed, and the landlord won the case.

The landlord then brought a coverage action against Lexington and one other insurer. The two main defenses raised by Lexington were "late notice" and the applicability of the pollution exclusion. Although Virginia law does not generally require an insurer to prove prejudice from late notice, the late notice provision stated that "Any delay by the Insured in providing notice shall not affect the Insured’s right to coverage under this policy, except if and to the extent that the Company proves that it actually and substantially was prejudiced by any unreasonable delay in notice." The court held that the two-year delay in notification was untimely and that Lexington was actually and substantially prejudiced because Lexington was unable to engage actively in discovery and was unable to participate in possible settlement discussions. The court also went on to hold that even if Lexington were not entitled to summary judgment on late notice, the pollution exclusion in Lexington’s first party property policy barred the landlord’s claim for clean-up of PIB vapors and/or residue.