Publications

(Article from Insurance Law Alert, June 2015)

For more information, please visit the Insurance Law Alert Resource Center.

A federal bankruptcy court ruled that a Texas statute requires application of Texas law to an insurance coverage dispute even though the parties expressly agreed to application of New York law.  In re: ATP Oil & Gas Corp., No. 12-36187 (S.D. Tex. Bankr. June 5, 2015).

ATP Oil & Gas sought coverage under a maritime insurance policy for certain pollution-related losses.  ATP did not dispute that it failed to provide “immediate notice” of an occurrence that gave rise to a claim, as required by the policy.  However, ATP argued that it was still entitled to coverage because the insurer did not suffer prejudice.  The insurance policy expressly stated that New York law would govern matters of contract interpretation.  Although New York statutory law requires a showing of prejudice in certain late notice cases, see  N.Y. Ins. Law § 3420, it does not apply to insurance “in connection with ocean going vessels,” as was the case here.

Notwithstanding the policy’s New York choice of law provision, the court held that the policy was ambiguous as to choice of law.  The court explained that “a policy of insurance, by necessity, incorporates applicable state law insurance requirements into the terms of the policy.”  Texas statutory law provides that any insurance contract issued to a Texas citizen is held to be a contract “made and entered into” and “governed [by]” Texas law.  Tex. Ins. Code § 21.42.  Under Texas Supreme Court precedent, an insurer must demonstrate prejudice in order to deny coverage based on late notice.  Addressing the conflict between “statutorily mandated Texas law” and “contract-mandated New York law,” the court held that the conflict must be resolved in favor of the insured such that Texas law applies.