Timely Notice and Presumption of Prejudice

 

Indiana Insurance sought a rehearing of the Indiana Supreme Court's opinion in a previous case. In that ruling, the court addressed the issue of whether a CGL form covers an insured contractor for the faulty workmanship of its subcontractor. (The court answered that question in the affirmative.) However, an issue that the court did not address was the timeliness of the insured's notice to the insurer and the effect on coverage, and that is what Indiana Insurance sought to have answered. This case is Sheehan Construction Company v. Continental Casualty Company, 938 N.E.2d 685 (2010).

 

The CGL form in question stated that a duty of the insured was to see that the insurer was notified as soon as practicable of an occurrence or an offense that may result in a claim. The form also declared that the insured was supposed to notify the insurer as soon as practicable if a lawsuit is brought against the insured and immediately send to the insurer copies of any legal papers received in connection with the lawsuit. In this instance, the insured was sued in November 2004 but did not provide notice to the insurer until September 2006. During that time period, the lawsuit was certified as a class action, the litigation underwent extensive discovery and many depositions were conducted, and a settlement was reached in the amount of $2.8 million. As a result, Indiana Insurance argued that it was prejudiced by the insured's delay in providing prompt notice.

 

The insured did not dispute that it failed to give timely notice, but said that the insurer failed to present any evidence that it was harmed or prejudiced in any way by reason of the failure to notify. The court answered that prejudice to the insurer's ability to prepare an adequate defense can be presumed by an unreasonable delay in notifying the company about an accident or about the filing of a lawsuit. And, once prejudice is presumed, the burden is on the insured to establish some evidence that prejudice did not occur in the particular situation.

 

The court noted that the insured did not give Indiana Insurance timely notice and so, prejudice was therefore presumed. The insurer thus carried its initial burden of demonstrating it had no liability to the insured, and the burden then shifted to the insured to rebut the presumption. This did not happen. The delay in notification was unreasonable and untimely, prejudice to the insurer was presumed, the insured failed to rebut the presumption while the insurer designated materials to the court establishing actual prejudice, so there is no coverage afforded under the liability policy to any claims asserted by the insured as a matter of law. The court granted the insurer's request for a rehearing.

 

Editor's Note: The Indiana Supreme Court rules that the insured's failure to notify its commercial general liability insurer of a claim until after a class-action settlement has been reached in the amount of about $2.8 million gave rise to a presumption that the insurer was prejudiced in its ability to prepare an adequate defense. Since prejudice was thus presumed, the burden then fell on the insured to rebut the presumption. In this case, the insured failed to do so and the court ruled that the insurer is relieved of its liability under the policy.