Tell liability insurance company of claims or suits ASAP.
by David L. Simmons, J.D.
The Indiana Court of Appeals recently underscored the importance of giving prompt notice of an insurance claim in the case of Travelers Cas. and Sur. Co. v. Maplehurst Farms, Inc., 18 N.E.3d 311 (Ind. App., 2014). This case involved losses incurred by Maplehurst as a result of environmental contamination caused by an underground storage tank. Maplehurst conveyed the property before discovery of the contamination, and the purchaser subsequently sought recovery from Maplehurst for the resulting remediation costs. Maplehurst then entered into a settlement agreement with the purchaser under which it paid certain costs and assumed the liability for remediation.
Maplehurst provided notice to Traveler's several months after the agreement had been reached. However, the relevant policy provided that “No insureds will, except at their own cost, voluntarily make a payment, assume any obligation, or incur any expense, other than for first aid, without our consent.” Once Traveler's discovered the agreement, it denied Maplehurst's claim and refused to provide a defense. Several years later, Maplehurst commenced litigation against Traveler's to procure coverage for the losses incurred, including the costs paid to the purchaser and defense costs incurred prior to the furnishing of notice.
The trial court found in favor of Maplehurst and awarded it both the pre-notice losses and defense fees. However, on appeal, the Indiana Court of Appeals found that the award was improper, holding that “an insured is not entitled to recover pre-notice costs” and “an insurer's duties under the policy do not arise unless and until the insurer has knowledge of the claim.” Because the costs and expenditures at issue were incurred by Maplehurst before it notified Travelers of the claim, those costs cannot be recovered.
The court also concluded that Traveler's was liable for the costs incurred by Maplehurst after notice of the claim was received. However, Traveler's argued that the costs at issue were incurred by Maplehurst at the time of the agreement with the purchaser, which was prior to the date on which notice was received. On the other hand, Maplehurst argued that Traveler's was liable for all costs incurred after the date of notice, regardless of when the agreement was reached.
The court agreed with Traveler's, ruling that Maplehurst obligated itself to remediate the property when it entered into the agreement, and therefore, no coverage exists for the pre-notice costs. To hold otherwise would allow an insured to settle a claim, notify the insurer, and obligate the insurer to cover the settlement. Such a result would violate the policy provision that prevents an insured from voluntarily assuming an obligation without the insurer's consent. Any insured that settles a claim without the insurer's knowledge or consent does so at the insured's own expense under the express language of this provision.
This case reminds us of the importance of providing timely notice of a claim to an insurer. Most liability insurance policies require a policyholder to provide notice of an occurrence “promptly” or “as soon as practicable.” They also generally require the policyholder to notify the insurance company if a claim is made or a suit is filed and served. In most instances, these are considered two separate notice requirements–both of which must be met in order to avoid losing coverage for an otherwise covered claim. Insureds should remain mindful of these requirements to avoid any loss of coverage.
David L. Simmons is a partner of Drewry Simmons Vornehm LLP, which maintains offices in Merrillville, Indianapolis and Carmel. He practices in the areas of construction law and litigation, commercial law and litigation, and business entities and transactions.
