Determining the duty to defend does not arise until the insurer receives notice of a claim, the Indiana Supreme Court further found the insured has no right to pre-notice defense costs. Dreaded, Inc. v. St. Paul Guardian Ins. Co., No. 49S02-0805-CV-244, Ind. Sup. Ct. April 28, 2009) [here].
In November 2000, Dreaded received a letter from the Indiana Department of Environmental Management ("IDEM") demanding an investigation of possible soil contamination at Dreaded's former business site. After Dreaded conducted an investigation and submitted reports, IDEM ordered Dreaded to conduct a further investigation in August 2003. Not until March 2004 did Dreaded notify St. Paul, its CGL carrier, requesting a defense and reimbursement for defense costs incurred prior to the notice.
St. Paul agreed to defend from the point of notice forward, but reserved rights and refused to reimburse for prior defense costs. Dreaded sued for defense costs incurred prior to its notice to St. Paul. The trial court granted summary judgment to St. Paul, determining no showing of the insurer's prejudice was necessary because the three and a half year delay in tendering the defense was unreasonable as a matter of law. The Court of Appeals reversed. Although the delay in providing notice was unreasonable and prejudice was presumed, the presumption was rebuttable. Dreaded had demonstrated sufficient evidence to raise a genuine issue of material fact as to whether St. Paul was prejudiced by the delayed notice.
The Indiana Supreme Court affirmed the trial court's granting of summary judgment to St. Paul. Prejudice was an irrelevant consideration. The insurer could not defend a claim of which it had no knowledge. The duty to defend did not arise until the insurer received proper notice. Here, the policy required prompt notice. Moreover, the policy prohibited the insured from assuming any financial obligations without the insurer's consent.
