DTCI: Insurance policies’ notice provision

By James P. Strenski

A number of recent Indiana cases have addressed the provision found in nearly all insurance policies that requires an insured to provide its insurer with prompt notice of a claim.While these cases have clarified the legal framework within which to assess a defense based on late notice, these cases still leave unanswered the question of sufficiency of the evidence required under the framework.This article will explore Indiana law interpreting the late notice provision and where this law leaves practitioners, both for the insured and the insurer.

I. The Notice Provision

Almost all insurance policies contain a notice provision in the “Conditions” section of the policy.An example of such language is as follows:

A. YOUR DUTIES AFTER ACCIDENT OR LOSS:

1. You must promptly notify us or our agent of any accident or loss.You must tell us how, when and where the accident and loss happened.You must assist in obtaining the names and addresses of any injured persons and witnesses.

The issue then becomes (1) when is notice “prompt” or “late” and (2) does the insurer have to show prejudice due to the late notice of a claim to be relieved of liability under the policy?

II. Historical Indiana Law on the Notice Provision

The first issue is what constitutes sufficient notice.Myriad Indiana cases over the years have interpreted various notice provisions to require an insured to provide “reasonable notice” of a claim to an insurer.See Miller v. Dilts, 463 N.E.2d 257, 263 (Ind. 1984) (holding that “promptly notify” requires an insurer to provide “reasonable” notice); Erie Ins. Exch. v. Stevenson, 674 N.E.2d 607, 611 (Ind. Ct. App. 1996) (holding that notice “as soon as possible” requires “reasonable” notice); Hartford Accident & Indem. Co. Hartford, Conn. v. Armstrong, 127 N.E.2d 347, 350 (Ind. Ct. App. 1955) (concluding that notice “as soon as practicable” requires “reasonable” notice); Employers Liab. Corp. v. Light, Heat & Power Co., 63 N.E.2d 54, 56 (Ind. Ct. App. 1902) (holding that “immediate” notice requires “reasonable” notice).If the facts of the case are undisputed, then what constitutes reasonable notice is a question of law for the court to decide.Askren Hub States Pest Control Servs., Inc. v. Zurich Ins. Co., 721 N.E.2d 270, 278 (Ind. Ct. App. 1999).While a number of Indiana courts have found notice to be unreasonable as a matter of law when notice was given a year or more after the occurrence, some courts have also held that a delay of months between the occurrence and the notice to the insurer can be unreasonable as a matter of law.See, e.g., Askren Hub, 721 N.E.2d at 278 (holding that a delay of six months before notifying the insurer of the occurrence constitutes unreasonable notice as a matter of law); Miller, 463 N.E.2d at 266 (entering summary judgment in favor of three insurance companies that received notice of the accidents giving rise to liability one month, six months, and seven months after their occurrence).

Once unreasonable notice has been established, then the issue of prejudice to the insurer due to the late notice must be addressed.The traditional legal framework with which to analyze an insurer’s prejudice due to unreasonable notice was articulated by the Indiana supreme court in Miller.463 N.E.2d 257.In that case, the court distinguished the notice provision from the cooperation provision found in policies, which under existing Indiana case law, requires the insurer to show actual prejudice from an insured’s noncooperation before the insurer is relieved of liability under the policy.Id. at 265.In doing so, the supreme court noted that notice is a threshold requirement that must be met before an insurer is even aware that a controversy or matter exists that requires the cooperation of the insured.Id.As such, the notice requirement was found to be material and of the essence of the contract.Id.The supreme court then went on to state the standard for analyzing a late notice claim as follows:

The requirement of prompt notice gives the insurer an opportunity to make a timely and adequate investigation of all the circumstances surrounding the accident or loss.This adequate investigation is often frustrated by delayed notice.Prejudice to the insurance company’s ability to prepare an adequate defense can therefore be presumed by an unreasonable delay in notifying the company about the accident or about the filing of the lawsuit.This is not in conflict with the public policy theory that the Court should seek to protect the innocent third parties from attempts by insurance companies to deny liability for some insignificant failure to notify.The injured party can establish some evidence that prejudice did not occur in the particular situation.Once such evidence is introduced, the question becomes one for the trier of fact to determine whether any prejudice actually existed.The insurance carrier in turn can present evidence in support of its claim of prejudice.Thus, both parties are able to put forth their respective positions in the legal arena.

Id. at 265-66.Thus, once notice has been established to be unreasonable as a matter of law, then a presumption of prejudice exists, and it is incumbent upon the insured to rebut the presumption.See id.The insurer in turn can present evidence in support of its claim of prejudice.Askren Hub States Pest Control Servs., Inc. v. Zurich Ins. Co., 721 N.E.2d 270, 279 (Ind. Ct. App. 1999).

III. Recent Indiana Law on the Notice Provision

The legal framework articulated by the Miller court was called into question due to the supreme court’s holding in Morris v. Economy Fire & Casualty Co., 848 N.E.2d 663 (Ind. 2006).In Morris, the supreme court held that an insured’s duties under the “Conditions” section of a policy (which in Morris included the insured’s duties to show damaged property, to provide the insurer with records and documents, and to submit to an examination under oath) were separate and distinct from the cooperation provision, and that prejudice is not a consideration in determining the enforceability of the policy’s conditions.848 N.E.2d at 666.Since the notice provision is typically found in the “Conditions” section of a policy, a question arose regarding whether the Morris holding was a shift away from the Miller framework, which imposed a rebuttable presumption of prejudice on late notice claims.The Indiana Supreme Court in Dreaded, Inc. v. St. Paul Guardian Insurance Co., 904 N.E.2d 1267, 1271 (Ind. 2009) recognized this inconsistency when it stated:

Governing Indiana caselaw is inconclusive regarding the necessity and function of prejudice in evaluating an insurer’s alleged failure to perform when its insured fails to comply with the policy notice requirement.

Id. at 1271.However, the Dreaded court declined to address the inconsistency as it distinguished the issue presented (when an insurer’s duty to defend is triggered) from the issues presented in Miller and its progeny (where the insurer is attempting to disclaim all liability under a policy due to late notice).See generally 904 N.E.2d 1267.Correspondingly, the Dreaded court found that under the facts of its case, prejudice was irrelevant.Id. at 1273.

The supreme court addressed the apparent inconsistency between Miller and Morris in its decision, Tri-Etch, Inc. v. Cincinnati Insurance Co., 909 N.E.2d 997 (Ind. 2009).In Tri-Etch, the court affirmed the legal framework articulated in Miller regarding late notice as it stated:

We do not take Morris to alter the holding in Miller.Both Morris and Miller specifically distinguished breach of the policy provision in question in their cases from breach of a general cooperation clause, which does require that the insurer show prejudice to defeat coverage.The quoted language in Morris applies to some, but not necessarily all provisions in the policy “other” than the duty to cooperate.Miller specifically addressed late notice, and held that prejudice to the insurer is presumed by the insured’s late notice, but the insured may rebut the presumption with evidence showing the late notice created no prejudice.The parties have presented this case as one governed by Miller, and we affirm its holding today.

909 N.E.2d at 1005.In addition to affirming the legal framework articulated in Miller for late notice claims, the Tri-Etch court also commented on what an insured must show in terms of evidence of nonprejudice to rebut the presumption.Id.The court, in reversing the court of appeals, held that an insurer’s denial of coverage on other grounds does not rebut the presumption of prejudice from the late notice.Id.In so holding, the Tri-Etch court reasoned:

There is no reason why an insurer should be required to forego a notice requirement simply because it has other valid defenses to coverage.If there is no prejudice to the insurer from lack of notice, the absence of prejudice does not arise from the insurer’s taking the position that it also has other valid defenses to coverage.Rather, it arises from the insurer’s taking no action with respect to the claim because of its other defenses.Even if an insurer consistently denies coverage, timely notice gives the insurer an opportunity to investigate while evidence is fresh, evaluate the claim, and participate in early settlement.The fact that an insurer asserts other coverage defenses does not render these opportunities meaningless.It is a fact issue whether other defenses would have caused the insurer, if given timely notice, to do nothing with respect to the claim.However, because we find Cincinnati’s policies did not apply to this claim, we do not consider whether Tri-Etch’s notice was late or, if so, whether the late notice prejudiced Cincinnati.

Id. at 1005-1006.Thus, while the Tri-Etch court did not directly address the sufficiency of evidence under the Miller framework, it did comment that an argument that the insurer denied the claim on other grounds is, standing alone, insufficient to rebut the presumption of prejudice due to late notice.See id.

The next Indiana case to address the sufficiency of evidence under the Miller framework is Indiana Farmers Mutual Insurance Co. v. North Vernon Drop Forge, 917 N.E.2d 1258 (Ind. Ct. App. 2009), reh’g denied, transfer denied.North Vernon involved an environmental claim in which the insured deposited contaminated fill dirt on another entity’s land after representing that the dirt was clean.917 N.E.2d at 1264.The recipient of the contaminated fill dirt eventually brought suit against North Vernon.Id. at 1262.North Vernon’s insurer, Indiana Farmers, then filed a declaratory judgment action seeking a declaration of no coverage under North Vernon’s CGL policy on a number of grounds, one of which was that North Vernon’s late notice to Indiana Farmers relieved it of liability under the policy.Id. at 1265.

The court, after finding that North Vernon’s notice to Indiana Farmers was unreasonable as a matter of law, turned to the issue of prejudice.Id. at 1275.The court held that the evidence designated in the case rebutted the presumption of prejudice as a matter of law as North Vernon safeguarded Indiana Farmers’ interests by cooperating with IDEM and complying with the August 2006 Notice of Violation.Id. at 1276.The court also distinguished the case at issue from an automobile accident or arson case, where the litigants need to produce percipient witnesses, collect transient physical evidence, and reconstruct instantaneous events.Id.Finally, the court addressed Indiana Farmers’ argument that it was prejudiced because the scope of contamination and IDEM-mandated cleanup increased in the time it went unnotified.The court characterized this argument as bearing on the extent of Indiana Farmers indemnification and not on its prejudice in defending North Vernon from liability in the underlying suit.Id.With this distinction in mind, the court held that the unreasonably late notice did not bar coverage under the Indiana Farmers policy as a matter of law.Id.

The most recent case to examine the sufficiency of evidence of prejudice under the Miller framework is P.R. Mallory & Co., Inc. v. American Casualty Co. of Reading, PA, 920 N.E.2d 736 (Ind. Ct. App. 2010), transfer denied.P.R. Mallory is another environmental case concerning contamination that occurred at the site owned by a series of insureds over a number of decades in Attica, Indiana.920 N.E.2d at 739.One of the defenses raised by the insurers was late notice of the claim, and they eventually moved for summary judgment, seeking a bar of coverage under the issued policies.Id. at 744.The court in P.R. Mallory, after finding that the insureds’ notice to the insurers was unreasonable as a matter of law, addressed the issue of prejudice.Id. at 753-54.On this topic, the court followed the holding in Tri-Etch, and concluded that the fact that the insurers maintained there was no coverage on other grounds did not rebut the presumption that they were prejudiced by the untimely notice of the claim.Id. at 754.The court then addressed the insureds’ argument that the insurers’ own expert praised the investigatory and remedial work being performed at the site by the environmental consultant that had been hired by the insured subsequent to notice to the insurers.Id. at 755.The court found this evidence to be insufficient to rebut the presumption of prejudice as it stated:

Even assuming that this statement came from ACC and CCC’s [the insurers’] expert and the statement refers to CRA [the insureds’ consultant], we cannot say that this statement regarding the performance of a consulting firm hired years after the pollution and after ACC and CCC were notified constitutes evidence that prejudice did not occur.

Id.Because the insureds failed to present evidence to rebut the presumption of prejudice, the court in P.R. Mallory went on to find that summary judgment on behalf of the insurers was appropriate.Id. at 756.

IV. Conclusion

Recent Indiana jurisprudence on the issue of an insured’s late notice of a claim to its insurer has clarified the legal framework to be used for such a defense.As per the holding in Tri-Etch, we know that the rebuttable presumption framework articulated in Miller v. Dilts is still the law of the land.However, questions regarding what evidence is sufficient to rebut the presumption of prejudice and what evidence is sufficient to show prejudice after the presumption has been rebutted remain open.The court of appeals’ holding in North Vernon found that the insured’s cooperation with IDEM and promptly complying with the notice of violation to be sufficient evidence to rebut the presumption.The court also found that the insurer’s argument that it was prejudiced because the scope of contamination increased in the time it went unnotified to be lacking.In contrast, the court of appeals in P.R. Mallory held that evidence that the insurers’ own expert praised the investigatory and remedial work being performed by the insured’s environmental expert to be insufficient, and thus found that the insureds failed to rebut the presumption of prejudice as a matter of law.Transfer was denied by the supreme court in both North Vernon and P.R. Mallory.As a result, counsel for both insureds and insurers are left to speculate regarding what evidence is sufficient to rebut the presumption of prejudice and to show prejudice after the presumption has been rebutted.It will likely take additional cases on this matter to resolve this issue and provide greater clarity and guidance to counsel that practice in this area.•

Mr. Strenski is a partner in the Indianapolis firm of Cantrell, Strenski & Mehringer and is a member of the DTCI Insurance Coverage Section.The opinions expressed in this article are those of the author.