## Facts

- Sandefer Oil & Gas, Inc., a Texas oil-and-gas exploration company, obtained oilfield-risk insurance policies through a Houston broker; the policies were delivered to Sandefer in Houston.
- The policies were amended to cover costs related to any “out of control” well, including losses from underground blowouts or uncontrolled subsurface flows.
- Sandefer sustained six losses in 1982–1983 (three tied to Louisiana operations and three tied to Texas/Oklahoma operations).
- Sandefer admitted it knew of the losses when they occurred but did not submit notices of loss until July 1985.
- Insurers denied coverage based on policy provisions requiring “as soon as practicable” or “reasonably prompt” notice.
- Sandefer argued the delay was excused because it did not realize underground blowouts were covered until later.

## Issues

1. Under Louisiana choice-of-law rules applied in federal diversity jurisdiction, whether Texas law or Louisiana law governs interpretation and enforcement of the policies’ notice provisions.
2. Under the applicable law, whether Sandefer’s multi-year delay in giving notice bars coverage for the claimed losses.

## Decision

- The Fifth Circuit affirmed summary judgment for the insurers.
- Applying Louisiana choice-of-law principles, the court held Texas law governed the notice provisions because the insurance relationship was centered in Texas (Texas insured, Texas broker, delivery in Texas, and multi-state risks).
- Under Texas law, failure to give reasonably prompt notice barred recovery, and the insurers were not required to show prejudice.
- On undisputed facts, Sandefer’s 1985 notice for 1982–1983 losses was not reasonably prompt as a matter of law.

## Legal Principles

- A federal court sitting in diversity applies the forum state’s choice-of-law rules.
- Under Louisiana choice-of-law methodology, the governing law is that of the state whose policies and interests would be most seriously impaired if not applied, considering contacts such as domicile, place of contracting/delivery, and the relationship of the contract to the relevant states.
- Under Texas insurance law, an insured’s failure to provide notice “as soon as practicable” can defeat coverage even absent insurer prejudice.
- An insured’s contemporaneous knowledge of a loss coupled with a multi-year delay in reporting may constitute noncompliance with a reasonably prompt notice condition as a matter of law.

## Conclusion

The Fifth Circuit held that Texas law governed the insurance policies’ notice provisions and that Sandefer’s multi-year delay in reporting known losses breached the notice condition, barring coverage without any requirement that the insurers prove prejudice.


Sandefer Oil & Gas, Inc. v. AIG Oil Rig of Tex. Inc., 846 F.2d 319 (5th Cir. 1988)