Court Opinion

ID: 4544109
Source: CourtListenerOpinion
Date Created: 2020-06-25 18:00:59.893762+00
Date Added: 2024-06-11T12:49:11.385201
License: Public Domain

In the

    United States Court of Appeals
                 For the Seventh Circuit
                     ____________________
No. 19‐2260
CARMINE GREENE, et al.,
                                                Plaintiffs‐Appellants,
                                 v.

WESTFIELD INSURANCE COMPANY,
                                                 Defendant‐Appellee.
                     ____________________

         Appeal from the United States District Court for the
         Northern District of Indiana, South Bend Division.
            No. 3:09‐cv‐510 — Philip P. Simon, Judge.
                     ____________________

     ARGUED JANUARY 8, 2020 — DECIDED JUNE 26, 2020
                ____________________

   Before FLAUM, ROVNER, and SCUDDER, Circuit Judges.
    SCUDDER, Circuit Judge. This appeal represents the culmi‐
nation of more than ten years of litigation between a group of
neighbors in Elkhart, Indiana and a nearby wood recycling
facility. The neighbors alleged that VIM Recycling’s waste
disposal practices exposed them to dust and odors in viola‐
tion of federal environmental law. They also brought state tort
law claims for the resulting loss of use and enjoyment of their
property and adverse health eﬀects. At certain points the
2                                                  No. 19‐2260

defendants—VIM Recycling, a related entity, and their
owner, Kenneth Will—successfully fended oﬀ the neighbors’
claims. But sometimes they did nothing at all. These litigation
choices eventually led to a $50.56 million default judgment
against VIM.
    What began as a case about environmental pollution has
evolved into a joint garnishment action against VIM’s insurer,
Westfield Insurance, to satisfy some of that $50.56 million
judgment. Now that the neighbors share their litigation inter‐
ests with VIM—both want Westfield to pay the judgment—
they had to adjust some of their positions to argue that VIM’s
Westfield policies apply. The neighbors labor to distance
themselves from certain facts they previously pleaded were
true to show that VIM did not know the extent of the pollution
at the time its Westfield insurance policy went into eﬀect. This
task proves too diﬃcult. Because two exceptions in the insur‐
ance agreement apply, we aﬃrm summary judgment for
Westfield Insurance.
                               I
                               A
    VIM began operating its Elkhart wood recycling facility
around 2000. Problems allegedly began in the nearby residen‐
tial community soon thereafter. By 2009 a group of neighbors
banded together to bring a class action lawsuit to recover for
damage to their property.
     The plaintiﬀs are a certified class of 1,025 neighbors de‐
fined as all persons who owned or resided on property within
certain boundaries between October 2003 and April 2013. In
their complaint, the neighbors described VIM’s Elkhart site as
littered with massive, unbounded outdoor waste piles. They
No. 19‐2260                                                   3

also alleged that the company processed old, dry wood out‐
side without the proper emissions, all of which violated the
Fugitive Dust Control Plan that the Indiana Department of
Environmental Management, or IDEM, imposed on the site in
July 2000.
    The neighbors claimed that VIM’s disposal practices
harmed the surrounding environment and their health. With‐
out any containment system, waste piles emitted harmful
smoke, dust, and odors and resulted in pollution seeping into
the ground. The waste was also an eyesore, attracted mosqui‐
tos, termites, and rodents, and posed a fire hazard to the
neighbors’ properties. VIM’s grinding of wood materials fur‐
ther emitted dust and other pollution, which collected on
homes and cars. Many neighbors also alleged that the expo‐
sure to wood dust caused health problems, including “severe
headaches, eye, nose and throat irritation, chronic bronchitis,
unexplained skin rashes, nose bleeds, diﬃculty breathing,
asthma‐like and other respiratory symptoms.” They claimed
that over the years they had “attended public hearings and
meetings, signed petitions, and submitted oral and written
complaints” to numerous state and federal agencies, the me‐
dia, and VIM itself before finally resorting to federal court in
2009.
    While some of this was taking place, VIM had acquired
general commercial liability policies with Westfield Insur‐
ance. These policies collectively ran from January 1, 2004
through January 1, 2008, and obligated Westfield to pay up to
$2 million of any judgments against VIM for “property dam‐
age” or “bodily injury.” Each policy contained a section enti‐
tled “Duties in the Event of Occurrence, Oﬀense, Claim Or
Suit,” which required VIM “as soon as practicable” to notify
4                                                   No. 19‐2260

Westfield of any occurrence or oﬀense that “may result in” a
claim. Upon the filing of a claim, the policies uniformly re‐
quired that VIM “must see to it that [Westfield] receive[d]
written notice of the claim or ‘suit.’” This notice would then
allow Westfield to either take over defending the lawsuit or
seek to contest coverage through other proceedings.
                               B
   Beyond this background, the litigation history is im‐
portant. It involves three separate lawsuits over the course of
10 years. Bear with us.
    First Lawsuit. On October 27, 2009, the neighbors filed their
original complaint in the Northern District of Indiana against
three related VIM defendants—VIM Recycling LLC (which
operated the facility), K.C. Industries LLC (which owned the
property), and Kenneth Will (who was the president and
owner of both). The complaint detailed the neighbors’ alleged
harm to their property and health stemming from the facil‐
ity’s disposal practices. The neighbors sued for violations of
the federal Resource Conservation and Recovery Act. They
also brought supplemental claims for nuisance, trespass, and
negligence under Indiana law and sought injunctive relief,
damages for their tort claims, and attorneys’ fees available un‐
der RCRA.
    On April 21, 2010, the district court dismissed the com‐
plaint because of statutory limitations under RCRA and de‐
clined to exercise supplemental jurisdiction over the state law
claims. At the time of the court’s dismissal, Westfield Insur‐
ance had no knowledge of (or involvement in) the litigation.
The reason was because VIM never notified Westfield that it
had been sued in federal court for events that took place
No. 19‐2260                                                    5

within the policy coverage periods. VIM instead took it upon
itself to hire a law firm to defend against the neighbors’ law‐
suit. And when the district court dismissed the neighbors’
complaint, VIM never informed Westfield of the develop‐
ment. Put most simply, Westfield never knew about its poten‐
tial liability exposure.
   But the story does not end there. The neighbors appealed,
and we reversed the district court’s dismissal order, holding
that the complaint did state a claim under RCRA and there
was federal jurisdiction. See Adkins v. VIM Recycling, 644 F.3d
483 (7th Cir. 2011). We remanded for further proceedings.
    Second Lawsuit. In the meantime, VIM did seek coverage
from Westfield in a diﬀerent case. On May 24, 2010, the neigh‐
bors filed a second, nearly identical lawsuit against VIM in
Indiana state court. Pending an investigation into its own cov‐
erage obligations, Westfield responded by hiring its own law‐
yer to serve as its assigned defense counsel for VIM in this
state action. Despite all this interaction, neither VIM nor the
neighbors informed Westfield about the existence of—let
alone sought coverage for—the parallel federal action then
pending in this court.
    On October 14, 2010—two weeks after VIM gave notice of
and a request of coverage for the state lawsuit—Westfield
learned for the first time about the federal lawsuit. Mark
Smith, the attorney Westfield had just hired to serve as its out‐
side counsel in connection with the investigation into cover‐
age for the state action, told a Westfield Litigation Specialist
that the neighbors had sued VIM in federal court as well, and
that the case had been dismissed but was on appeal in the Sev‐
enth Circuit. Westfield took no action upon learning this new
information.
6                                                    No. 19‐2260

    Third Lawsuit. Westfield meanwhile continued to evaluate
its potential exposure in the case pending in state court. It con‐
cluded that it had no coverage obligations and sent a letter to
VIM stating as much. It then sought a declaratory judgment
in federal court against both VIM and the neighbors. VIM
never answered the complaint, and the district court entered
a default declaring that Westfield had no duty to defend or
indemnify VIM in the state action. The court ordered that the
neighbors enter into a stipulation with Westfield stating that
Westfield had no duty to indemnify or defend in the state ac‐
tion because VIM did not provide timely notice of the lawsuit
“or history of the environmental issues outlined therein.”
    Between 2010 and 2011 there were three cases in play—the
original federal case (the case before us), the state case, and
the federal declaratory judgment case relating to the state
case. Westfield Insurance successfully disclaimed any obliga‐
tion in Indiana state court through the federal declaratory
judgment action but did not concern itself with this case,
which it had only heard about indirectly from its own lawyer
when it had been dismissed.
    While VIM’s lawyers were initially successful in winning
dismissal of the neighbors’ claims without Westfield’s in‐
volvement, things quickly began to unravel on remand in the
district court. VIM’s counsel withdrew from the case and the
company never retained new counsel. And VIM still did not
notify Westfield of this lawsuit for which it now seeks cover‐
age. VIM’s failure to defend itself in the litigation had adverse
consequences for the company—the district court adopted all
of the neighbors’ facts. It calculated the damages for the
neighbors’ nuisance claim, which included “the loss of use
and enjoyment of their properties and the personal
No. 19‐2260                                                      7

discomfort and inconvenience caused by VIM Defendants’
operations from October 28, 2003 to July 25, 2011.” The court
noted that class members felt trapped in their own homes,
“not being able to have cookouts, work in the garden, talk to
their neighbors, or engage in any of the other types of outdoor
activities.” Many left the neighborhood altogether for weeks
at a time because of the conditions. All of this led to the court
entering a default judgment of $50.56 million, plus $273,000
in litigation costs, against VIM.
    So we come to the issue before us today. After securing the
default judgment but realizing they were unable to recover
much from VIM, the neighbors moved to institute proceed‐
ings against Westfield under Federal Rule of Civil Procedure
69, which allows the court to “garnish,” or recover, a money
judgment that one party owes another. See Yang v. City of Chi‐
cago, 137 F.3d 522, 526 (7th Cir. 1998) (“[A] Rule 69 garnish‐
ment proceeding to collect a judgment from a third person not
party to the original suit is within a court’s ancillary jurisdic‐
tion, providing the additional proceeding does not inject so
many new issues that it is functionally a separate case.” (in‐
ternal quotation marks omitted)). The neighbors invoked the
rule and sought to garnish Westfield’s indemnity obligation
to VIM pursuant to its insurance policies to satisfy part of the
$50.56 million award.
    As a threshold matter, the district court declined West‐
field’s invitation to apply the doctrine of res judicata to the or‐
der entered in the declaratory judgment action, which stated
that the Westfield policies did not apply to the neighbors’
damages. The district court charted that course because it
viewed the declaratory judgment action as relating only to the
8                                                  No. 19‐2260

Indiana state case and therefore having no preclusive eﬀect in
the ongoing federal court litigation.
    From there the district court still proceeded to enter sum‐
mary judgment for Westfield. The court concluded that West‐
field owed no insurance coverage because the policy excluded
damages for expected or intended injuries, the neighbors’
damages were claims known to VIM at the time it purchased
the policies, and VIM breached the policies’ notice require‐
ment.
   The neighbors and VIM—now both plaintiﬀs in this action
against Westfield—appealed.
                               II
    We first address the two relevant exclusions in VIM’s gen‐
eral commercial liability policies with Westfield. The policies
generally applied to any damages VIM was legally obligated
to pay because of “bodily injury” or “property damage” that
took place within the coverage period. If an exclusion applies,
however, Westfield had no obligation to VIM, and the neigh‐
bors cannot seek to recover any of their judgment from West‐
field.
   Each of the four policies in place during the relevant pe‐
riod contained an exclusion for “known claims.” This type of
exclusion gives eﬀect to the common law principle “that one
may not obtain coverage for a loss that has already taken
place.” Ind. Ins. Co. v. Kopetsky, 14 N.E. 3d 850, 852 (Ind. Ct.
App. 2014). The alternative would defeat a basic purpose of
acquiring insurance in the first instance—to cover future, not
past, losses. See 1 COUCH ON INSURANCE § 1:7 (3d ed. 2020).
   VIM’s policies with Westfield specifically stated that they
did not cover losses if “a listed insured or authorized
No. 19‐2260                                                    9

employee knew prior to the policy period, that the bodily in‐
jury or property damage occurred” and that “any continua‐
tion, change or resumption” of the property damage or bodily
injuries “during or after the policy period will be deemed to
have been known prior to the policy period.” This forward‐
looking aspect of the known claims exclusion is closely re‐
lated to a second and separate exclusion Westfield invokes as
part of disclaiming any coverage. This second exclusion pro‐
vides that coverage does not extend to any bodily injury or
property damage “expected or intended from the standpoint
of [VIM].”
    We interpret the “known claim” and “expected or in‐
tended injury” exclusions based on their plain language. See
Motorists Mut. Ins. Co. v. Wroblewski, 898 N.E.2d 1272, 1275
(Ind. Ct. App. 2009) (“If the language is clear and unambigu‐
ous, we give the language its plain and ordinary meaning.”).
Though they are distinct, we can evaluate the two exclusions
together, as the language of both focuses on when VIM first
learned about the property damage and bodily injuries that
gave rise to the neighbors’ lawsuit in 2009.
     The extent of Westfield’s obligations can be easily resolved
(as nonexistent) if VIM—specifically, VIM’s owner Kenneth
Will—knew about the neighbors’ injuries before the first pol‐
icy went into eﬀect on January 1, 2004. If he did, any similar
injuries that took place in the next four years would amount
to the revival of a known claim and that exclusion would ap‐
ply. It also stands to reason that Will would reasonably have
expected those later injuries given that the VIM recycling fa‐
cility continued with the same disposal conduct for years after
this notice, so the expected or intended injury exclusion
would therefore apply as well. See Auto‐Owners Ins. Co. v.
10                                                No. 19‐2260

Harvey, 842 N.E.2d 1279, 1288 (Ind. 2006) (noting that Indiana
law requires courts to consider “whether the resulting injury
or damage was intentional or reasonably expected by the in‐
sured” (emphasis omitted)); see also PSI Energy, Inc. v. Home
Ins. Co., 801 N.E.2d 705, 728 (Ind. Ct. App. 2004) (“Expected
injury means injury that occurred when the insured acted
even though he was consciously aware that harm was practi‐
cally certain to occur from his actions.”).
   Evaluating Will’s knowledge is straightforward. Both the
complaint and the undisputed facts at summary judgment
supply many examples. Recall that, as part of entering a de‐
fault judgment against VIM, the district court properly
deemed and accepted as true all allegations advanced by the
neighbors in their second amended complaint. See Dundee Ce‐
ment Co. v. Howard Pipe & Concrete Prods., Inc., 722 F.2d 1319,
1323 (7th Cir. 1983). And at summary judgment, Westfield
submitted numerous IDEM letters and inspection reports that
were sent to Will before 2004. The Indiana Department of En‐
vironmental Management’s July 2000 Fugitive Dust Control
Plan for VIM—a plan designed to ensure that dust from wood
recycling did not leave VIM’s property—was only one of
many interactions between VIM and that department.
  Putting all of this evidence together, the record at sum‐
mary judgment included at least the following facts:
        A September 29, 2000 IDEM inspection prompted
         by neighbor dust complaints found that VIM’s
         grinding operations created visible dust and vio‐
         lated both the Indiana Administrative Code and its
         own Fugitive Dust Control Plan. An IDEM inspec‐
         tor spoke with Will about his findings on the same
No. 19‐2260                                                   11

       day, and a report was sent to Will by certified mail
       a month later.
      On July 14, 2001, Will signed an agreed order with
       IDEM reiterating the September 2000 findings and
       acknowledging other violations and days that fugi‐
       tive dust went beyond VIM’s property line.
      In August 2003, an IDEM inspector observed sev‐
       eral violations of the Fugitive Dust Control Plan,
       VIM’s operating permit, and Indiana environmen‐
       tal rules. The inspector documented these viola‐
       tions in an enforcement letter sent to Will in Octo‐
       ber 2003.
      Several neighbors made complaints about fugitive
       dust—some of which settled onto their cars—to
       IDEM in 2003. VIM paid to have some of the cars
       washed.
      Around the same time in 2003, the Elkhart Truth
       newspaper published two op‐eds about the fugitive
       dust problem at VIM.
      In an April 21, 2004 phone call with IDEM, Will
       acknowledged that he “had met with the neighbors
       on occasion to discuss fugitive dust concerns.”
      In all, IDEM issued five Notice of Legal Action or
       Notice of Violation/Potential Violation letters to
       VIM prior to January 1, 2004.
   Considered collectively, the record supplies overwhelm‐
ing evidence that VIM—and Kenneth Will in particular—
knew about the fugitive dust and resulting injuries before the
12                                                No. 19‐2260

first Westfield policy went into eﬀect. Any damages for those
injuries, then, were both known claims and expected injuries.
    The arguments the neighbors previously advanced in the
case also support this conclusion. Their argument on ap‐
peal—that VIM did not know about or expect these claims—
constitutes an abrupt change of course. Remember this whole
controversy started with the suit for property damage over
the course of many years. In 2015, when the district court had
just entered default against VIM, the neighbors suggested
that the court calculate their damages for a period that began
on October 28, 2003. That is two months before VIM’s first
Westfield policy went into eﬀect on January 1, 2004 and sup‐
ports the proposition that the property damage was a known
claim or expected injury by that date.
    There is more. In their second amended complaint—again,
all of which has been accepted as true—the neighbors alleged
that they notified VIM about the problems “[o]n countless oc‐
casions” but VIM “callously continue[d] their harmful activi‐
ties and turn[ed] a deaf ear and blind eye to the neighbors’
complaints.” The neighbors thus cannot credibly claim that
the VIM defendants were unaware of these injuries before
January 1, 2004 or that they would not reasonably have ex‐
pected them to continue through 2008. For this reason, both
the known claim and expected or intended injury exclusions
apply, and Westfield is not obligated to cover the neighbors’
judgment.
                             III
   The neighbors and VIM urge several diﬀerent reasons to
avoid the eﬀect of the policy exclusions. None are persuasive.
No. 19‐2260                                                    13

                                A
   They first do so by arguing that the district court based the
default judgment award on injuries that did not rise to the
level of “bodily injury” or “property damage” as defined in
the insurance policies and therefore do not fall within either
exclusion—which apply only to these kinds of harm. Falling
outside these definitions, the neighbors and VIM continue,
means that the policy exclusions cannot operate to preclude
garnishment. We do not buy the contention.
    We again begin with the plain language of the insurance
policies. See Buckeye State Mut. Ins. Co. v. Carfield, 914 N.E.2d
315, 318 (Ind. Ct. App. 2009). The policies define “property
damage” as both “[p]hysical injury to tangible property” and
“[l]oss of use of tangible property that is not physically in‐
jured.” The policies also provide that “bodily injury means
bodily injury, sickness or disease sustained by a person.” The
neighbors’ tort damages that formed the basis for the default
judgment accounted for their loss of use of their properties, as
they were at times either forced indoors or driven out of the
area entirely. The fact that they were deprived of their out‐
door spaces plainly meets the policies’ definition of “property
damage” as “[l]oss of use of tangible property.”
    What is more, the argument that the neighbors’ injuries
are not “property damage” is self‐defeating. VIM’s relevant
Westfield policies covered only damages for “bodily injury”
or “property damage.” If the neighbors’ award is not based
on “bodily injury” or “property damage,” then it is not cov‐
ered by the policies at all and Westfield does not owe indem‐
nity in the first place. If, on the other hand, the dust did cause
“bodily injury” or “property damage,” it is clear that VIM was
14                                                   No. 19‐2260

aware of those same issues before 2004 and the exclusions ap‐
ply. The neighbors cannot have it both ways.
                                B
    The neighbors also point to an aﬃdavit from Kenneth
Will, prepared in 2018 for these supplemental garnishment
proceedings, to create a factual issue. In the aﬃdavit, Will
states that “[a]t no time prior to January 1, 2007”—the date the
final year‐long policy went into eﬀect—“was [he] aware that
‘bodily injury’ or ‘property damage’ within the meaning of
the Westfield Policies … had occurred in whole or in part as
the result of the operations or other conduct of VIM or K.C. or
conditions at the Site.”
    The district court held that Will’s representations failed to
create a factual issue for the purposes of summary judgment.
While we review summary judgment decisions de novo, a dis‐
trict court’s decision to set aside an aﬃdavit submitted on
summary judgment to create an issue of fact is assessed only
for abuse of discretion. See Ziliak v. AstraZeneca LP, 324 F.3d
518, 520 (7th Cir. 2003).
    We consider only the obvious meaning of Will’s statement
that while he may have known about the fugitive dust and
neighbors’ complaints, he was unaware that the damage con‐
stituted “bodily injury” or “property damage” as defined in
the Westfield policies. This reading is most consistent with the
plain meaning of his statement as he mentions “within the
meaning of the Westfield Policies” and puts the exclusions
themselves in quotes, indicating them as defined terms in the
policies. It is also the only plausible conclusion in light of the
existing record. But aﬃdavits are for stating facts, not legal
conclusions. See FED. R. CIV. P. 56(c)(4) (specifying that
No. 19‐2260                                                15

aﬃdavits must “set out facts that would be admissible in evi‐
dence”); see also Pfeil v. Rogers, 757 F.2d 850, 862 (7th Cir.
1985) (noting that “legal argument in an aﬃdavit may be dis‐
regarded”).
    It is possible that Will did not know the neighbors’ com‐
plaints prior to January 1, 2007 met these policy definitions.
As the district court noted, however, that is not what matters
for the purpose of the expected or intended injury exclusion.
The pertinent inquiry concentrates more on known facts. We
are concerned with only whether Will knew that VIM was en‐
gaging in activities that would cause some form of harm to
the neighbors’ property. See FLM, LLC v. Cincinnati Ins. Co.,
27 N.E.3d 1141, 1143 (Ind. Ct. App. 2015) (noting that the
question whether an injury was expected ensures that it was
not accidental); Ind. Farmers Mut. Ins. Co. v. Graham, 537
N.E.2d 510, 512 (Ind. Ct. App. 1989) (“Expected injury or dam‐
age means that the insured acted although he was consciously
aware that the harm caused by his actions was practically cer‐
tain to occur.”).
    Will was certainly aware of these underlying facts before
the policies went into eﬀect. He knew that the neighbors were
complaining to IDEM between 2000 and 2003. Indeed, he ad‐
mits in his aﬃdavit that he paid to have their cars washed. He
also cannot deny that he received several letters from IDEM
documenting violations and fielded neighbor complaints
around the same time. All of this occurred before 2004. Put
another way, by January 1, 2004, Will knew of and routinely
acknowledged the dust problems. The overwhelming weight
of evidence here—the facts the neighbors themselves relied
on when they won their default judgment in 2015—supports
the district court’s conclusion that VIM was “consciously
16                                                   No. 19‐2260

aware that the kind of environmental harms alleged in the
Class’s complaint, and on which the default judgment is
based, were practically certain to result from their operation
of the Elkhart facility over the period of coverage.” Summary
judgment was appropriate because there is no genuine dis‐
pute of material fact.
    Try as they might, the neighbors cannot construe the lan‐
guage of the operative policy exclusions to support a view at
odds with the position they pressed for years in pursuing
claims against VIM. The exclusions apply and Westfield has
no obligation to pay any portion of the $50.56 million default
judgment the neighbors secured before bringing the insurer
into the litigation.
                                C
    Finally, the neighbors and VIM argue that Westfield is es‐
topped from invoking any policy exclusions because it
breached its duty to defend. It is true that if Westfield received
adequate notice of the lawsuit, it likely had a duty to defend
VIM, as “[t]ypically, an insurer has a duty to defend its in‐
sured against suits alleging facts that might fall within the
coverage.” Fed. Ins. Co. v. Stroh Brewing Co., 127 F.3d 563, 566
(7th Cir. 1997). The duty to defend is broader than the duty to
indemnify, meaning that it might apply even if the policy is
ultimately found not to cover the insured’s conduct. See Ind.
Farmers Mut. Ins. Co. v. N. Vernon Drop Forge, Inc., 917 N.E.2d
1258, 1267 (Ind. Ct. App. 2009).
    Under Indiana law, insurance exclusions act as aﬃrmative
defenses and the insurer has the burden of proving their ap‐
plicability. See Keckler v. Meridian Sec. Ins. Co., 967 N.E.2d 18,
23 (Ind. Ct. App. 2012). And like other aﬃrmative defenses,
No. 19‐2260                                                    17

they may be waived in certain circumstances. The neighbors
and VIM argue that if Westfield breached its duty to defend,
it is now estopped from raising the known claim and expected
or intended injury exclusions, as “[a]n insurer, having
knowledge its insured has been sued, may not close its eyes
to the underlying litigation, force the insured to face the risk
of that litigation without the benefit of knowing whether the
insurer intends to defend or to deny coverage, and then raise
policy defenses for the first time after judgment has been en‐
tered against the insured.” Liberty Mut. Ins. Co. v. Metzler, 586
N.E.2d 897, 902 (Ind. Ct. App. 1992). An insurer that has re‐
ceived notice of a lawsuit and believes it has no duty to defend
should act as Westfield did in VIM’s state case—it should ei‐
ther file a declaratory judgment action or hire counsel to de‐
fend its insured under a reservation of rights. See id. Not do‐
ing so is risky and done at the insurer’s “own peril.” Id. at 901.
    The question whether Westfield received notice that might
have triggered its duty to defend is complicated because In‐
diana law is murky on the issue of indirect notice in these cir‐
cumstances. Recall that Westfield only found out about this
case from its own lawyer in October 2010, while the case was
on appeal in this court. VIM plainly violated its obligation un‐
der the policies to provide written notice of the suit “as soon
as practicable.”
    But VIM’s policy violation does not end the inquiry. Alt‐
hough Indiana law recognizes that notice requirements are
“material, and of the essence of the [insurance] contract,” Mil‐
ler v. Dilts, 463 N.E.2d 257, 263 (Ind. 1984), an insurance com‐
pany can disclaim coverage only if it was prejudiced by the
lack of notice. See Tri‐Etch, Inc. v. Cincinnati Ins. Co., 909
N.E.2d 997, 1004 (Ind. 2009). And while the neighbors and
18                                                       No. 19‐2260

VIM recognize that late notice “creates a rebuttable presump‐
tion of prejudice in favor of the insurer,” they argue that West‐
field had not been prejudiced when it received its indirect no‐
tice. Id. They contend that Westfield’s duty to defend re‐
mained intact because everything that had happened up until
October 2010 in the federal court litigation was positive for
Westfield, as the case had been dismissed.
   We note that the prejudice inquiry is only debatable if the
indirect notice triggered Westfield’s duty to defend. If the in‐
direct notice was inadequate, however, Westfield was
properly notified only by the filing of supplemental proceed‐
ings and was certainly prejudiced at that point by the $50.56
million default judgment. VIM’s failure to notify Westfield
would be a material violation of the policies, and Westfield
would owe no indemnity.
    The district court held that inadequate notice was yet an‐
other reason to grant summary judgment for Westfield. But
given our conclusion about the known claim and expected or
intended injury exclusions, it is unnecessary for us to wade
into this area of Indiana insurance law addressing indirect no‐
tice and prejudice. Indeed, we decline to do so.
    Even if the indirect notice triggered Westfield’s duty to de‐
fend VIM, Westfield would not be equitably estopped from
raising its policy defenses. True enough—in some cases Indi‐
ana courts have held that an insurer may be so estopped after
failing to defend its insured. See, e.g., Ind. Ins. Co. v. Ivetich, 445
N.E.2d 110, 112 (Ind. Ct. App. 1983); Am. Family Mut. Ins. Co.
v. Kivela, 408 N.E.2d 805, 811 (Ind. Ct. App. 1980). But those
cases were concerned with abandonment after direct notice
and held “leaving the insured to fend for itself[] bars the
No. 19‐2260                                                   19

insurer from recourse to its exclusions.” Stroh Brewing Co., 127
F.3d at 571.
     We confront very diﬀerent circumstances here. The record
does not support a conclusion that Westfield has acted in bad
faith by flatly refusing VIM coverage in this federal case. Its
actions in the state case indicate that—had VIM tendered
proper notice—Westfield would likely have taken steps to in‐
vestigate and the neighbors may have faced a defense in the
underlying case. Our consideration is equitable and Westfield
in no way avoided or breached its duty to defend by leaving
its insured out in the cold. At best it had only indirect notice
of the lawsuit and no indication that VIM or the neighbors—
who were both in possession of the facts essential to provide
direct notice—would ever seek coverage. Westfield shirked
no responsibilities in the face of VIM’s and the neighbors’ be‐
lated, opportunistic pursuit of policy coverage. In the totality
of the facts and circumstances, we cannot conclude that prin‐
ciples of equity have a role to play. Even if the indirect notice
triggered any duty to defend, Westfield would not be es‐
topped from claiming its applicable policy exclusions.
   For these reasons, we AFFIRM.