Indiana's Late Notice Prejudice Analysis Supported by 7th Circuit

(Image from 7th Circuit website)

Although this blog post is not about environmental law, it touches on a major funding source for environmental cleanups: insurance.  Insurers often contest coverage by claiming that a late notice defense precludes coverage. Last week, the 7th Circuit provided further support for Indiana's policyholder-friendly late notice prejudice analysis.               

The late notice prejudice analysis in Miller v. Dilts, 463 N.E.2d 257 (Ind. 1984) was recently supported by a well-reasoned decision from the 7^th Circuit.  In Nat’l Union Fire Ins. Co. of Pittsburgh, Pa. v. Mead Johnson & Co. LLC, Nos. 3:11-cv-00015RLY-WGH, 3:11-cv-00161-RLY-WGH (7^th Cir. Oct. 29, 2013), Mead Johnson’s insurance policies required it to notify its insurer “as soon as practicable” after a claim.  Mead Johnson, however, did not notify its insurer of a false advertisement lawsuit until after it had lost a $13.5 million jury trial.  Even though Mead Johnson “failed inexcusably to comply with the notice provisions in its liability insurance policies,” the 7^th Circuit reaffirmed that unreasonably late notice only “create[s] a presumption of harm.” Mead Johnson at 7.  The burden then shifts to the policyholder to produce “some evidence” of no prejudice from the late notice. Id.  When the policyholder does so, the burden shifts to the insurer to produce evidence of actual prejudice. Id. at 9.  The court held that because the insurer produced no evidence of prejudice, summary judgment for the insurer was reversed and the case remanded for further proceedings. Id.    

Judge Posner, writing for the 7^th Circuit concluded that the Indiana Supreme Court would not approve the holdings of two Indiana Court of Appeals decisions that had formed the basis for the trial court to erroneously hold that the presumption of prejudice from late notice can be irrebuttable. Id. at 10.  In Allstate Ins. Co. v. Kepchar, 592 N.E.2d 694, 699 (Ind. Ct. App. 1992) (involving a motorcycle accident) and Milwaukee Guardian Ins., Inc. v. Reichhart, 479 N.E.2d 1340, 1343 (Ind. Ct. App. 1985) (involving alleged negligence in clearing a drainage ditch) the Indiana Court of Appeals held that the failure to provide notice until after the underlying suit was tried deprives an insurer of the opportunity to make decisions regarding the conduct of the trial and justifies a finding of prejudice as a matter of law. Kepchar, 592 N.E. 2d at 699–700; Reichhart, 479 N.E.2d at 1343.  The 7^th Circuit held the deprivation of the right to control the defense “is not a tangible injury . . . nor, if the insurer could have done no better in managing the defense at trial than the insured did, even a cause of injury.” Mead Johnson at 10. 

“There is no indication that the Indiana Supreme Court will retreat from its position that the presumption of harm to an insurer from untimely notice is rebuttable.” Id. at 10–11.  “Indiana law, as stated in the Miller case, holds to the principle that if an insured inflicted no cost on his insurer by untimely notice, with the result that the insurer lost nothing by virtue of the untimeliness, then to allow the insurer to reject the insured’s claim would confer a windfall on the insurer.” Id. at 11.  “In effect the insurer would be awarded damages equal to the insured’s claim even though the insurer had not been injured at all.” Id.  

If you have any questions about this decision or any other insurance coverage questions, please do not hesitate to contact me or any of the insurance lawyers at Plews Shadley Racher & Braun LLP.

Bird Law...or Something Like It

The legal expert Charlie Kelly once said, "I know a lot about the law and various other lawyerings. I'm well educated. Well versed. I know that situations like this- real estate wise- they're very complex." (Author's note: Charlie Kelly, of the lovely comedy series "Always Sunny in Philadelphia," is not an expert in anything except Nightcrawlers.) However, Charlie had a point about Bird Law. "Bird law in this country is not governed by reason." 

The closest thing we have to Bird Law here in the real world is the former U.S. Army Corps of Engineers "Migratory Bird Rule." At one time, the Corps adopted this so-called "Migratory Bird Rule," which asserted that the Corps had jurisdiction over any water, even over isolated wetlands, "which are or would be used as habitat by... migratory birds that cross state lines." This rule was overturned by the U.S. Supreme Court in Solid Waste Agency of Northern Cook County (SWANCC) v. U.S. Army Corps of Engineers, 531 U.S. 159 (2001). The Supreme Court held that neither the Corps nor the EPA can exert jurisdiction over isolated wetlands based solely on the presence of migratory birds. Thanks to SWANCC, Bird Law in the U.S. is one step closer to being governed by reason. The EPA and the Corps do not have jurisdiction over isolated wetlands just because a migratory bird takes a rest there. See Rapanos and my earlier post on the Clean Water Act here for more information about where the EPA and the Corps do have jurisdiction.