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November 4, 2013   Miller v. Dilts Late Notice Prejudice Analysis Supported by 7th Circuit
By Colin E. Connor

The late notice prejudice analysis in Miller v. Dilts, 463 N.E.2d 257 (Ind. 1984) was recently supported by a well-reasoned decision from the 7th Circuit.  In Nat’l Union Fire Ins. Co. of Pittsburgh, Pa. v. Mead Johnson & Co. LLC, Nos. 3:11-cv-00015RLY-WGH, 3:11-cv-00161-RLY-WGH (7th Cir. Oct. 29, 2013), Mead Johnson’s insurance policies required it to notify its insurer “as soon as practicable” after a claim.  Mead Johnson, however, did not notify its insurer of a false advertisement lawsuit until after it had lost a $13.5 million jury trial.  Even though Mead Johnson “failed inexcusably to comply with the notice provisions in its liability insurance policies,” the 7th Circuit reaffirmed that unreasonably late notice only “create[s] a presumption of harm.” Mead Johnson at 7.  The burden then shifts to the policyholder to produce “some evidence” of no prejudice from the late notice. Id.  When the policyholder does so, the burden shifts to the insurer to produce evidence of actual prejudice. Id. at 9.  The court held that because the insurer produced no evidence of prejudice, summary judgment for the insurer was reversed and the case remanded for further proceedings. Id.    

Judge Posner, writing for the 7th Circuit concluded that the Indiana Supreme Court would not approve the holdings of two Indiana Court of Appeals decisions that had formed the basis for the trial court to erroneously hold that the presumption of prejudice from late notice can be irrebuttable. Id. at 10.  In Allstate Ins. Co. v. Kepchar, 592 N.E.2d 694, 699 (Ind. Ct. App. 1992) (involving a motorcycle accident) and Milwaukee Guardian Ins., Inc. v. Reichhart, 479 N.E.2d 1340, 1343 (Ind. Ct. App. 1985) (involving alleged negligence in clearing a drainage ditch) the Indiana Court of Appeals held that the failure to provide notice until after the underlying suit was tried deprives an insurer of the opportunity to make decisions regarding the conduct of the trial and justifies a finding of prejudice as a matter of law. Kepchar, 592 N.E. 2d at 699–700; Reichhart, 479 N.E.2d at 1343.  The 7th Circuit held the deprivation of the right to control the defense “is not a tangible injury . . . nor, if the insurer could have done no better in managing the defense at trial than the insured did, even a cause of injury.” Mead Johnson at 10. 

“There is no indication that the Indiana Supreme Court will retreat from its position that the presumption of harm to an insurer from untimely notice is rebuttable.” Id. at 10–11.  “Indiana law, as stated in the Miller case, holds to the principle that if an insured inflicted no cost on his insurer by untimely notice, with the result that the insurer lost nothing by virtue of the untimeliness, then to allow the insurer to reject the insured’s claim would confer a windfall on the insurer.” Id. at 11.  “In effect the insurer would be awarded damages equal to the insured’s claim even though the insurer had not been injured at all.” Id.       

If you have any questions about this decision or any other insurance coverage questions, please do not hesitate to contact Colin Connor or any of the insurance lawyers at Plews Shadley Racher & Braun LLP. 

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