Dreaded, Inc. v. St. Paul Guardian Ins. Co.

• Decision Date: 28 April 2009
• Docket Number: No. 49S02-0805-CV-244.,49S02-0805-CV-244.
• Citation: 904 N.E.2d 1267
• Parties: DREADED, INC., Appellant (Plaintiff), v. ST. PAUL GUARDIAN INSURANCE CO., St. Paul Protective Insurance Co., and St. Paul Fire and Marine Insurance Co., Appellees (Defendants).
• Court: Indiana Supreme Court

904 N.E.2d 1267

DREADED, INC., Appellant (Plaintiff), v. ST. PAUL GUARDIAN INSURANCE CO., St. Paul Protective Insurance Co., and St. Paul Fire and Marine Insurance Co., Appellees (Defendants).

No. 49S02-0805-CV-244.

Supreme Court of Indiana.

April 28, 2009.

George M. Plews, Brett E. Nelson, Jonathan P. Emenhiser, Plews Shadley Racher & Braun LLP, Indianapolis, IN, Attorneys for Appellant.

Mary K. Reeder, Riley Bennett & Egloff, LLP, Richard A. Rocap, Rocap Witchger LLP, Indianapolis, IN, Jeffrey C. Gerish, Kenneth C. Newa, David A. Dworetsky, Plunkett & Cooney, P.C., Bloomfield Hills, MI, Attorneys for Appellees.

Philip B. McKiernan, Joseph M. Hendel, Steven W. Krohne, Indianapolis, IN, for Amici Curiae Complex Ins. Claims Litig. Ass'n.

Karl L. Mulvaney, Barry C. Cope, Barbara A. Jones, Indianapolis, IN, for Amici Curiae Insurance Institute of Indiana.

Charles P. Edwards, John P. Fischer, Christian P. Jones, Indianapolis, IN, Attorneys for Amici Curiae Nat'l Solid Wastes Mgmt Assoc., and Ind. Petrol. Marketers Assoc.

On Transfer from the Indiana Court of Appeals, No. 49A02-0701-CV-78.

DICKSON, Justice.

Facing an environmental damage claim, the appellant, Dreaded, Inc., waited over three years to notify its insurer, the defendants-appellees (collectively referred to as "St. Paul"), and now seeks reimbursement for defense costs and expenses incurred during the pre-notice period. We affirm the trial court's grant of St. Paul's motion for summary judgment and hold that, as to claims seeking recoupment of an insured's pre-notice defense costs predicated on an alleged breach of an insurer's duty to defend, the insurer's duty to defend did not arise and prejudice is an irrelevant consideration.

The facts are relatively straightforward. On November 17, 2000, Dreaded received a letter from the Indiana Department of Environmental Management ("IDEM") demanding that it investigate possible soil contamination at a former business site and warning of potential enforcement actions and civil penalties. In response, Dreaded hired an attorney to defend it against the claim and hired an environmental contractor to investigate. The contractor's investigation resulted in two reports, one in mid-2001 and another in late-2002, both of which were forwarded to IDEM. In August of 2003 IDEM replied by a second letter ordering Dreaded to conduct further investigation and to provide a full delineation of the contamination. In March of 2004, three and one-half years after the first IDEM claim letter, Dreaded, which was covered under several commercial general liability insurance policies issued by St. Paul, notified St. Paul of the IDEM claim and requested that St. Paul take up its defense in the IDEM claim and reimburse Dreaded for defense costs incurred to that point. St. Paul responded in May 2004, agreeing that the IDEM claim fell within the policies' provision obligating St. Paul to defend Dreaded from that point forward, but expressly reserving its rights and refusing to reimburse Dreaded for defense costs incurred prior to the March 2004 notice and tender. Dreaded filed suit. Its complaint was in two counts, the first seeking declaratory relief "establishing [St. Paul's] duty to fully defend and indemnify Dreaded against the IDEM Action." Appellant's App'x at 23. In the second count, Dreaded seeks damages for St. Paul's breach of its obligations under the policies requiring St. Paul "to defend Dreaded against the IDEM Action and to indemnify it for all sums that it has incurred and will incur up to policy limits." Id. St. Paul defended by claiming that the insurance policy provisions requiring prompt notice and disclaiming liability for financial obligations incurred or payments made without St. Paul's consent precluded St. Paul's duty to defend prior to receiving notice and Dreaded's claim for pre-notice expenses.

Both parties sought summary judgment. The trial court denied Dreaded's motion and granted St. Paul's, concluding in part that: "[a] policyholder has a duty to tender claims in order to trigger an insurer's duty to defend under a general liability policy"; "[a] showing of prejudice is not required in the present case"; and "[e]ven if a showing of prejudice was required in this case, this Court finds that Dreaded's delay of nearly three and one-half years in tendering the [u]nderlying IDEM claim to St. Paul is unreasonable as a matter of law, and gives rise to a presumption of prejudice in St. Paul's favor." Id. at 15-16.

The Court of Appeals reversed, concluding that Dreaded's delay in notifying St. Paul of the IDEM claim was unreasonable; that prejudice must be shown by St. Paul, but would be presumed due to the unreasonably late notice; and that the presumption is rebuttable and Dreaded "has designated sufficient evidence to raise a genuine issue of material fact as to whether St. Paul was prejudiced as a result of the delayed notice." Dreaded, Inc. v. St. Paul Guardian Ins. Co., 878 N.E.2d 467, 474 (Ind.Ct.App.2007). We granted transfer.

In this appeal, Dreaded is challenging the trial court's grant of St. Paul's motion for summary judgment. When reviewing a grant of summary judgment, our standard of review is the same as that of the trial court. Shambaugh & Son, Inc. v. Carlisle, 763 N.E.2d 459, 461 (Ind.2002). Considering only those facts that the parties designated to the trial court, we must determine whether there is a "genuine issue as to any material fact" and whether "the moving party is entitled to a judgment as a matter of law." Ind. Trial Rule 56(C); Freidline v. Shelby Ins. Co., 774 N.E.2d 37, 39 (Ind.2002); Shell Oil Co. v. Lovold Co., 705 N.E.2d 981, 983-84 (Ind. 1998). In answering these questions, the reviewing court construes all factual inferences in the non-moving party's favor and resolves all doubts as to the existence of a material issue against the moving party. N. Ind. Pub. Serv. Co. v. Bloom, 847 N.E.2d 175, 180 (Ind.2006). The moving party bears the burden of making a prima facie showing that there are no genuine issues of material fact and that the movant is entitled to judgment as a matter of law; and once the movant satisfies the burden, the burden then shifts to the non-moving party to designate and produce evidence of facts showing the existence of a genuine issue of material fact. Mullin v. Mun. City of South Bend, 639 N.E.2d 278, 281 (Ind.1994).

Dreaded presents the following principal issues on appeal: (1) neither the St. Paul policies nor Indiana law contain a "tender" requirement that excludes coverage for defense costs incurred prior to the insured's giving notice to the insurer; (2) Dreaded is entitled to recover its pre-notice defense costs unless St. Paul can prove that it was prejudiced by Dreaded's late notice; and (3) St. Paul failed to present specific evidence of actual prejudice. St. Paul, in contrast, asserts that it had no duty to defend Dreaded against the IDEM claim until Dreaded first complied with the notice provision. It is undisputed that this compliance did not occur until more than three years after Dreaded was first notified of the IDEM claim and that, upon receiving the notice, St. Paul assumed the defense of Dreaded as to this claim. St. Paul emphasizes that it is "not seeking to avoid all obligations under the policies." Br. of Appellees at 15 (italics in original).

The insuring agreement in the comprehensive general liability policy contract provides in relevant part that St. Paul has "the right and duty to defend any protected person against a claim or suit for injury or damage covered by this agreement," but that it does not "have a duty to perform any other act or service." Appellant's App'x at 76. Relevant to Dreaded's claim for indemnification defense costs incurred prior to notice, the following policy language is germane:

Additional payments. We'll have the duty to make only the additional payments shown below in connection with any claim or suit under this agreement against a protected person when we:

• investigate or settle the claim or suit; or

• defend the protected person against the claim or suit.

* * *

Expenses incurred by protected persons.

We'll pay all reasonable expenses that any protected person incurs at our request while helping us investigate or settle, or defend a protected person against, a claim or suit....

Id. at 77 (emphasis by underscore added).

St. Paul alleges that it has no obligation to pay for pre-notice expenses incurred by Dreaded because of the notice provision and the voluntary payment provision located in a section of the St. Paul policies that prescribes the insured's obligations in the event of loss. This section is prefaced with the following introduction:

You or other protected persons are required to perform the duties described below when a property loss that may be covered under this policy happens or an accident or incident happens that could result in liability damages covered under this policy. Failure to comply could affect coverage. The insuring agreements contained in this policy determine what is covered. As a result, you should read them carefully to understand the extent of the coverage provided.

Id. at 330. The specific notice and voluntary payment conditions at issue in this case provide in relevant part as follows:

When This Policy Provides Liability Protection

If an accident or incident happens that may involve liability protection provided in this policy, you or any other protected person involved must:

* * *

2. Tell us or our agent what happened as soon as possible. Do this even though no demand for damages has been made against you or any other protected person, but you or another person is aware of having done something that may later result in a demand for damages. The notice should include all of the following:

• The time and place of the accident or incident;

• The protected person involved;

• The specific nature of the accident or incident including the...