B.S.C. HOLDING, INC.; LYONS SALT COMPANY, Plaintiffs - Appellants,
LEXINGTON INSURANCE COMPANY, Defendant-Appellee.
D. Kansas, D.C. No. 2:11-CV-02252-EFM
Before LUCERO, TYMKOVICH, and BACHARACH, Circuit Judges.
ORDER AND JUDGMENT [*]
Robert E. Bacharach Circuit Judge
Lyons Salt Company and its sole shareholder, B.S.C. Holding, Inc., own an underground salt mine in Kansas that suffered water intrusion. When told about the water intrusion, the insurer (Lexington Insurance Company) did not pay on the policy, and Lyons and B.S.C. Holding sued to obtain a declaratory judgment recognizing coverage for the damage and related expenses. Lexington moved for summary judgment, arguing that the Plaintiffs took too long to provide notice.
The district court agreed and granted summary judgment to Lexington, prompting the Plaintiffs to appeal. Appellant's App. vol. VII at 2230-51; see B.S.C. Holding, Inc. v. Lexington Ins. Co., 947 F.Supp.2d 1150 (D. Kan. 2013).
We reverse. Even if the Plaintiffs had taken too long, the delay would only relieve Lexington of coverage if it showed substantial prejudice. Because Lexington presented no evidence of actual prejudice, it was not entitled to summary judgment.
The Policies' Notice Provisions
Lexington insured Lyons and B.S.C. Holding through a series of "all-risk" policies covering a broad range of losses. Appellants' App. vol. IV at 933. These policies contain a substantially similar notice provision:
Notice of Loss. The Insured shall as soon as practicable report in writing to the Company or its agent every loss, damage or occurrence which may give rise to a claim under this policy and shall also file with the Company or its agent within ninety (90) days from date of discovery of such loss, damage or occurrence, a detailed sworn proof of loss.
Appellants' App. vol. IV at 961.
Discovery of the Water Inflow and Notification
In January 2008, the Plaintiffs' employees detected an inflow of water in the salt mine and feared dissolution of the salt or structural problems. As a result, the Plaintiffs tried to determine the cause and to devise a solution. In April 2010, the Plaintiffs attributed the inflow to an improperly sealed oil well and regarded the "future of the mine [as] dire." Br. of Appellants at 9. In July 2010, the Plaintiffs notified Lexington of the water inflow.
Lexington then learned that the Plaintiffs had already spent over $2.5 million to find the cause of the water inflow and identify a solution to "prevent the physical loss of the mine." Appellant's App. vol. VI at 1505-06. The ultimate proof of loss was for $7.5 million, which included remediation measures that the Plaintiffs had undertaken before they notified Lexington of the inflow. Id. at 1523.
For the sake of argument, we can assume that the Plaintiffs waited too long to notify Lexington. Nonetheless, the Plaintiffs' delay would only relieve Lexington of coverage if it proved substantial prejudice. See Nat'l Union Fire Ins. Co. v. FDIC, 957 P.2d 357, 368 (Kan. 1998); Atchison, Topeka & Santa Fe Ry. Co. v. Stonewall Ins. Co., 71 P.3d 1097, 1137 (Kan. 2003) (quoting Cess ...