The Court of Appeals of Indiana recently affirmed a trial court’s order granting summary judgment to an insurer based on the insured’s failure to provide notice regarding environmental liability for almost 20 years. This is the first reported decision in which the Court of Appeals of Indiana affirmed summary judgment on late notice in the environmental coverage context.
In P.R. Mallory & Company, Inc. et al. v. American Casualty Company of Reading, PA and Continental Casualty Company, No. 54A01-0903-CV-142, the Court held that notice to the insurers of the environmental claim was unreasonably late and that the insured failed to rebut the presumption of prejudice with any evidence. Troutman Sanders LLP attorneys Jack Gerstein, Patrick Hofer, Scott Turner and Lisa Ellison represented the insurers. The Plaintiffs, including P.R. Mallory & Company, Inc. (“P.R. Mallory”) and Kraft Foods Global, Inc. (“Kraft”), were represented by Morgan, Lewis & Bockius LLP.
The insurers issued four consecutive commercial general liability policies from 1980 through 1984 to the insured, Radio Materials Company (“RMC”). From 1957 through 1978, RMC was a division of P.R. Mallory and P.R. Mallory was subsequently purchased by Kraft. RMC dumped chlorinated solvents into unlined pits from the 1950s until approximately 1978. As early as 1980, RMC notified the USEPA of its hazardous waste activity and in 1986, it completed a certification identifying the location and contents of the unlined pits to the environmental authorities. Following this 1986 certification, RMC notified Kraft of the potential liability in 1989 and engaged environmental remediation experts to investigate and remediate the site long before notifying its insurers. RMC signed a consent order with the USEPA in 1999. Kraft claims it put RMC’s insurers on notice in 2000 through the filing of a declaratory judgment action that sought insurance coverage for the environmental liabilities of P.R. Mallory and other Kraft-related companies. In 2002, RMC reached an agreement with Kraft regarding recoveries under RMC’s insurance policies. The insurers contended that neither RMC nor Kraft Foods provided notice under the policies at issue in this case until 2003, almost 20 years after RMC had notice of potential environmental liabilities at the site.
The Court affirmed that what constitutes reasonable notice is a question of law for the court to decide and stated that regardless of whether notice was given in 2000 or 2003, notice was unreasonably late. As a result, there was a presumption that the insurers were prejudiced. Further, the Court stated that the fact that the insurers also maintained there was no coverage based upon other grounds did not preclude them from raising the late notice issue and did not conclusively rebut the presumption that untimely notice of the claims prejudiced the insurers. Finally, the Court reaffirmed that it was the insured’s burden to rebut the presumption of prejudice and not the insurers’ burden to prove actual prejudice when notice is unreasonably late.
The Court of Appeals of Indiana has made clear that reasonable notice to the insurer is just as essential in the environmental context as in other contexts and that the Court will enforce this basic pre-condition to coverage under commercial liability insurance policies.