Insurer needs notice of claim to defend it

An insurer can't defend a claim of which it has no knowledge and its duty to defend doesn't begin until it receives basic notice information to allow it to defend a claim, ruled the Indiana Supreme Court. The high court affirmed today summary judgment in favor of an insurer on the question of when its duty to defend began in an environmental claim filed by a policy holder because the duty to defend didn't begin until the policy holder complied with the policy's notice requirement.

The question in Dreaded Inc. v. St. Paul Guardian Insurance Co., et al., No. 49S02-0805-CV-244, is whether St. Paul Guardian Insurance was liable for environmental damage claims against Dreaded Inc. that it was unaware of for more than three years. Dreaded received notice from the Indiana Department of Environmental Management requiring it to investigate contamination at a former business site. Dreaded notified St. Paul of the IDEM claim 3 ½ years later and asked St. Paul to take up its defense and reimburse the company for defense costs incurred up to that point. St. Paul agreed to defend Dreaded beginning at the point it received notice, but not for the 3 ½ years prior to receiving notice. Dreaded filed suit seeking declaratory relief establishing St. Paul's duty to fully defend and indemnify against the IDEM action and damages from the breach of contract of St. Paul's duty to defend. St. Paul countered it required prompt notice of damage claims and it wasn't liable for payments made without its consent. The Indiana Court of Appeals reversed summary judgment in favor of St. Paul.

Dreaded argued on appeal it's entitled to recover its pre-notice defense costs unless St. Paul can prove it was prejudiced by the company's late notice and St. Paul failed to present evidence showing actual prejudice. However, the facts of this case will result in the same outcome regardless of whether St. Paul has to show it was prejudiced, wrote Justice Brent Dickson. Dreaded's claim for damages is predicated solely on its contention St. Paul breached its duty to defend them against a claim or suit for injury or damage covered by their policy.

But an insurer can't defend a claim if it doesn't know about, and until it receives the basic information needed to allow it to defend a claim, the insurer can't be held accountable for breaching this duty, wrote the justice. St. Paul's duty to defend didn't arise until Dreaded complied with the policy's notice requirement, so the insurer is entitled to summary judgment as a matter of law.