Title: Dreaded, Inc. v. St. Paul Guardian Insurance Company
Citation: N/A
Docket Number: 49S02-0805-CV-244
State: Indiana
Issuer: Indiana Supreme Court
Date: April 28, 2009

ATTORNEYS FOR APPELLANT 
 
ATTORNEYS FOR APPELLEES 
ATTORNEYS FOR AMICI CURIAE 
George M. Plews  
 
 
Mary K. Reeder  
 
  
Brett E. Nelson  
 
 
Riley Bennett & Egloff, LLP 
COMPLEX INS. CLAIMS LITIG. ASS’N 
Jonathan P. Emenhiser 
 
 
Indianapolis, Indiana 
 
Philip B. McKiernan 
Plews Shadley Racher & Braun LLP 
 
 
 
 
Joseph M. Hendel 
Indianapolis, Indiana 
 
 
Richard A. Rocap 
 
 
Steven W. Krohne 
 
 
 
 
 
 
Rocap Witchger LLP 
 
Indianapolis, Indiana 
 
 
 
 
 
Indianapolis, Indiana 
 
 
 
 
 
 
 
 
 
 
 
 
 
INSURANCE INSTITUTE OF INDIANA 
 
 
 
 
 
Jeffrey C. Gerish  
 
Karl L. Mulvaney 
 
 
 
 
 
Kenneth C. Newa 
 
 
Barry C. Cope 
 
 
 
 
 
David A. Dworetsky 
 
Barbara A. Jones 
 
 
 
 
 
Plunkett & Cooney, P.C.  
Indianapolis, Indiana 
 
 
 
 
 
Bloomfield Hills, Michigan 
 
 
 
 
 
 
 
 
 
 
 
 
 
NAT’L SOLID WASTES MGMT ASSOC. 
 
 
 
 
 
 
 
 
 
AND IND. PETROL. MARKETERS ASSOC.
 
 
 
 
 
 
 
 
 
Charles P. Edwards 
 
 
 
 
 
 
 
 
 
John P. Fischer 
 
 
 
 
 
 
 
 
 
Christian P. Jones 
 
 
 
 
 
 
 
 
 
Indianapolis, Indiana 
______________________________________________________________________________ 
In the 
Indiana Supreme Court  
_________________________________ 
No.  49S02-0805-CV-244 
 
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). 
_________________________________ 
 
Appeal from the Marion Superior Court, No. 49D10-0503-PL-011747 
The Honorable David Dreyer, Judge 
_______________________________ 
 
On Transfer from the Indiana Court of Appeals, No. 49A02-0701-CV-78   
_________________________________ 
 
April 28, 2009 
 
Dickson, Justice.   
 
 
 
 
Facing an environmental damage claim, the appellant, Dreaded, Inc., waited over three 
FILED
CLERK
of the supreme court,
court of appeals and
tax court
Apr 28 2009, 12:41 pm
 
2 
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. 
 
 
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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).   
 
 
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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 
 
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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 type or demand for 
damages that may result; and  
 The names and addresses of any witnesses and injured people. 
 
*     *     *    
5.  Not assume any financial obligation or pay out any money without our 
consent.  But this rule doesn't apply to first aid given to others at the time of an 
accident.  
 
Id. at 236.  The language of these conditions requiring prompt notice and prohibiting the 
assumption of financial obligation is clear and unambiguous and thus must be given its 
plain and ordinary meaning.  Morris v. Econ. Fire and Cas. Co., 848 N.E.2d 663, 666 
(Ind. 2006).   
   
 
Dreaded contends that the trial court erred and argues that there is no obligation to tender 
claims in order to trigger an insurer's duty to defend under the commercial general liability 
policy.  Treating the notice and voluntary payment clauses asserted by St. Paul as "coverage 
defenses – late-notice and non-cooperation,"1 Dreaded argues that for an insurer to avoid liability 
                                                 
1 Dreaded incorrectly characterizes the notice provision as a coverage defense.  It is not in the nature of a 
coverage exclusion, but rather functions as a condition precedent, delineating action that must be taken by 
Dreaded as a prerequisite to trigger St. Paul's obligations.  See Miller v. Dilts, 463 N.E.2d 257, 266 (Ind. 
1984) (notice "'is a threshold requirement which must be met before an insurer is even aware that a 
controversy or matters exists'" (quoting Ind. Ins. Co. v. Williams, 448 N.E.2d 1123, 1138 (Ind. Ct. App. 
1983) (Hoffman, J., dissenting), trans. granted)); Askren Hub States Pest Control Servs. v. Zurich Ins. 
Co., 721 N.E.2d 270, 277 (Ind. Ct. App. 1999) (notice is "material," "of the essence of the contract," "a 
condition precedent to the company's liability to its insured").          
 
 
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using these defenses, the insurer must have suffered prejudice, which may be presumed from an 
unreasonable delay as to the notice clause, but requires actual prejudice shown as to the non-
cooperation clause.  Br. of Appellant at 10.  Dreaded thus challenges the trial court's grant of 
summary judgment for St. Paul because it contends that prejudice is a relevant consideration and 
that there existed genuine issues of fact regarding actual prejudice.   
 
 
Governing Indiana case law is inconclusive regarding the necessity and function of 
prejudice in evaluating an insurer's alleged failure to perform when its insured fails to comply 
with a policy notice requirement.  In Miller v. Dilts, 463 N.E.2d 257 (Ind. 1984), this Court 
distinguished insurance policy provisions requiring an insured to give notice to the insurer from 
provisions requiring the insured to cooperate with the insurer's investigation and defense of a 
claim, holding that an insurer "must show actual prejudice from an insured's noncompliance with 
the policy's cooperation clause before it can avoid liability under the policy."  Id. at 261.  But 
where there is a violation of a notice provision, which is a "threshold requirement" for coverage, 
Miller opined that prejudice will "be presumed from an unreasonable delay in notifying the 
company."  Id. at 265.  In contrast, however, this Court briefly revisited the issue in Morris v. 
Economy Fire and Casualty Co., again noting that "disputes regarding alleged breaches of an 
insured's duty under a separate 'cooperation clause' may necessitate consideration of resulting 
prejudiced to the insurance company."  848 N.E.2d at 666.  But unlike cooperation clause 
violations, and in significant contrast to the "presumed prejudice" rationale espoused in Miller, 
we summarily declared that "prejudice is not a necessary consideration in determining the 
enforceability of other insurance policy provisions," but did not express explicit disapproval of 
Miller's presumption of prejudice formulation.  Id.     
 
 
A significant variation is found in decisions from other jurisdictions that have considered 
the issue.  See Charles C. Marvel, Annotation, Modern Status of Rules Requiring Liability 
Insurer to Show Prejudice to Escape Liability because of Insured's Failure or Delay in Giving 
Notice of Accident or Claim, or in Forwarding Suit Papers, 32 A.L.R.4th 141 §2 (1984, supp. 
2008).  This annotation identifies a "substantial number" of cases that "support a traditional 
proposition" holding that prejudice is irrelevant to an insurer's right to avoid its duty to defend in 
the event of its insured's unreasonable and unexcused omission or delay in complying with the 
 
7 
policy's notice requirements.  Id. at §2, 144-45, §3(a), 146-52.  But the same "substantial 
number" description is also used to identify jurisdictions that require an insured to show that it 
was prejudiced by the insured's failure of notice.  Id. at §5(a), 157-67.  Citing Miller, the 
annotation lists Indiana among those "few jurisdictions" that employ a presumption of prejudice 
analysis.  Id. at §3(b), 152, Supp. at 25.  Our recent Morris opinion is not referenced. 
 
 
Appraising the distribution of views differently, Dean Holmes believes that only in a 
decreasing minority of jurisdictions is the insurer not required to show that it was prejudiced by 
an insured's lack of  compliance with the policy notice requirement.  Eric Mills Holmes, 22 
HOLMES' APPLEMAN ON INSURANCE 2D §139.4, 316 (2003).  He explains that under this "no-
prejudice rule," compliance with the notice requirements are conditions precedent to an insurer's 
coverage obligations, and thus defective notice eliminates the insurer's obligation, even if the 
insurer was not prejudiced by the untimely or defective notice.  Id. at §139.4[A], 316.  In 
contrast, Holmes believes that "the overwhelming majority of states" follow a "prejudice rule" in 
which an insurer must demonstrate actual prejudice from a failure of proper notice.  Id. at 
§139.4[C], 321.  He also acknowledges that a "number of jurisdictions" address the issue by 
creating a rebuttable presumption of prejudice in favor of the insurer.  Id. at §139[C][b], 328.  
Noting only Miller and not Morris, he places Indiana in this category.     
 
 
The facts of the present case, however, compel the same outcome regardless of which 
approach is followed.  It is important to first recognize what this case is not about.  Dreaded is 
not seeking reimbursement for defense costs it incurred because St. Paul refused to defend after 
receiving notice of the IDEM claim.  See, e.g., Walton v. First Am. Title Ins. Co., 844 N.E.2d 
143, 146-49 (Ind. Ct. App. 2006), trans. denied.  Dreaded is not seeking indemnity for a 
damages judgment entered against it because St. Paul failed to defend after notice.  See, e.g., 
Stevenson v. Hamilton Mut. Ins. Co., 672 N.E.2d 467 (Ind. Ct. App. 1996), trans. denied.  
Dreaded does not here contend that it provided a timely notice of claim that, while defective in 
some respect, nevertheless substantially complied with the policy requirements or that its failure 
to give notice is legally excused.  See, e.g., Commercial Underwriters Ins. Co. v. Aires Envtl. 
Servs., Ltd., 259 F.3d 792, 796 (7th Cir. 2001).  Nor is this case about whether St. Paul had 
sufficient constructive notice from other sources to trigger its duty to defend notwithstanding a 
 
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lack of notice directly from Dreaded.   See, e.g., Frankenmuth Mut. Ins. Co. v. Williams, 645 
N.E.2d 605 (Ind. 1995); Wolf Lake Terminals, Inc. v. Mut. Marine Ins. Co., 433 F. Supp. 2d 
933, 951-52 (N.D. Ind. 2005) (collecting cases); Brandon v. Nationwide Mut. Ins. Co., 769 
N.E.2d 810 (N.Y. 2002).  Today's case differs from those in which an insurer seeks to 
completely disclaim its policy obligations on grounds that the insured didn't report the claim to 
the insurer within the time constraints in the policy's notice provision—here, e.g., "as soon as 
possible."  Appellant's App'x at 236.  St. Paul is not claiming late notice as an excuse to avoid its 
prospective obligations after receiving notice.  See, e.g., Miller, 463 N.E.2d at 259-60.  Dreaded's 
claim for damages is predicated solely on its contention that St. Paul breached the "duty to 
defend a protected person against a claim or suit for injury or damage covered by this 
agreement."  Appellant's App'x at 76.   
 
 
But an insurer cannot defend a claim of which it has no knowledge.  The function of a 
notice requirement is to supply basic information to permit an insurer to defend a claim.  The 
insurer's duty to defend simply does not arise until it receives the foundational information 
designated in the notice requirement.  Until an insurer receives such enabling information, it 
cannot be held accountable for breaching this duty.   
  
 
 
Dreaded's complete failure to comply with the notice requirement is undisputed.  For 
more than three years, Dreaded was aware of IDEM's environmental claim against it and failed 
to inform St. Paul.  Yet Dreaded now asserts that St. Paul breached its policy obligation to 
defend Dreaded during the time St. Paul knew nothing about the claim.  Under the facts of this 
case, prejudice is irrelevant.  The issue is simply whether the insurer had any duty to defend at 
all.  St. Paul's duty to defend did not arise until Dreaded complied with the policy's notice 
requirement.  St. Paul is entitled to summary judgment as a matter of law. 
 
  
 
Dreaded does not prevail in any of its appellate claims.  St. Paul was under no duty to 
defend the IDEM claim in the absence of any knowledge of the claim, and St Paul did not need 
to present any separate proof of prejudice to justify its failure to defend during the pre-notice 
period.  We affirm the trial court’s grant of summary judgment in favor of St. Paul.   
 
 
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Shepard, C.J., and Sullivan, Boehm, and Rucker, JJ., concur.