Indiana Insurance Coverage Law 101
By Colin Connor & Yuning Tian
If you are like most people and businesses, you just renew your insurance policy every year without much thought. As insurance is complicated, however, it may be helpful to review some important information about insurance policies and insurance coverage law in Indiana.
Types of Policies
First, you need to know which of the plethora of insurance products covering different types of risks is right for you: property, automobile, commercial general liability, product liability, health, worker’s compensation, etc. For example, if you are looking to buy insurance for your business, you may be interested in general liability insurance that provides a broad range of coverage for property damage, bodily injury, and personal injury claims. You may also be interested in automobile coverage to protect your work vehicles, property coverage to protect real property your business owns, etc.
Layers of Coverage
In addition to different types of policies, you may also purchase multiple layers of insurance coverage. Your primary policy provides the initial layer of coverage that kicks in first even if you have other policies covering the same risk. On top of your primary policy, you can purchase excess policies as the second layer of coverage to respond to losses above the limits of your primary policy. For example, if your primary insurance coverage limit is $100,000 and your excess policy coverage limit is $50,000, a $120,000 covered claim would be paid $100,000 by your primary insurance and $20,000 by your excess policy. You can also purchase umbrella policies as the top layer of coverage. Umbrella policies fill in the gaps in your coverage and can cover several different primary policies. Additionally, if you do not have underlying primary coverage, your umbrella coverage can function like a primary policy.
A typical insurance policy consists of the following basic parts: Declarations Page, Insuring Agreement/Coverages, Exclusions, Definitions, Endorsement, and Conditions. The Declarations Page is usually the first part of an insurance policy that identifies the policyholder, the policy period, the type of coverage afforded by the policy, the coverage limit and associated deductibles, and the forms and/or endorsements used in the policy. The Insuring Agreement/Coverages is the “heart” of an insurance policy identifying what the policy covers. For example, in a commercial general liability policy, the Insuring Agreement states that the policy covers property damage, bodily injury, and personal injury. The Insuring Agreement also sets out the insurer’s duty such as a duty to indemnify (i.e., protect the policyholder against liability limited by policy limits) and a duty to defend (i.e., investigation costs, attorneys’ fees). Under Indiana law, the duty to defend is broader than the duty to indemnify—the insurer must defend its policyholder if there is any possibility of a covered claim, even if there is evidence that it may not have to indemnify. See Seymour Mfg Co., Inc. v. Commercial Union Ins. Co., 665 N.E.2d 891 (Ind. 1996).
The Exclusions section typically follows the Insuring Agreement and takes coverage away from the Insuring Agreement. For example, homeowners policies often exclude damage from perils such as floods and earthquakes. Auto policies typically exclude damage from wear and tear. The Definitions section defines specific terms used throughout the policy. The definitions are not always intuitive and can be especially important in determining coverage obligations. Many policies also have a Conditions section that sets forth a list of conditions that must be met to ensure that coverage remains available. Common conditions include paying premiums on time, providing prompt notice to the insurance company, cooperating with the insurance company, etc. Lastly, an insurance endorsement is a change or addition to an insurance policy that may affect any aspect of the policy. Endorsements are typically located at the end of policies, and it is important for you to read all Endorsements to make sure you understand how your policy has changed.
Triggers of Coverage
Different policies may have different coverage triggers. A loss-causing event happening during the policy period triggers an occurrence-based policy regardless of when you report the claim. A claim must be made and reported during a policy period, however, to trigger a claims-made policy. For example, if a policyholder is sued during a claims-made policy period, the policyholder would also need to report the lawsuit to its insurer during the policy period to seek defense and/or indemnification.
Now that you have selected the policy, it is important to keep your insurance coverage current, keep copies of all policies in one location, back up your policies, maintain updated broker/agent contact information, and develop a plan before a claim arises.
What do you do in the event of an insurance claim?
Policyholders have an obligation to provide notice of claims to insurers. Your insurance policy might also have specific provisions requiring you to provide notice within a specified timeframe or as soon as practicable.
Indiana law provides that notice given by you or someone on your behalf to your insurer or the insurer’s authorized Indiana agent constitutes notice. Ind. Code § 27-1-13-7(b)(2). You should preferably give notice in writing, send it via certified mail to both your insurance company and your agent or broker, and request a return receipt. In the notice of claim letter, you should identify the policyholder and the policy number, attach the complaint, summons, demand letter, etc., provide complete and accurate information about your claim, and request defense and indemnity.
Even if your notice is late, this does not necessarily mean you have lost coverage. Indiana courts conduct a three-part inquiry to determine whether late notice bars coverage: (1) was notice actually late? (2) if late, was the insurer prejudiced? (3) is legal excuse a defense to late notice? Regarding the first inquiry, Indiana adopts the reasonableness standard and asks whether the policyholder tendered notice within a reasonable time. Liberty Mut. Ins. Co. v. OSI Industries, Inc., 831 N.E.2d 192, 203 (Ind. Ct. App. 2005). Second, if notice is late, a rebuttable presumption arises that the late notice prejudiced the insurer. The policyholder, however, may rebut the presumption with evidence showing that there was no actual prejudice. See generally Travelers v. Maplehurst, 953 N.E.2d 1153 (Ind. Ct. App. 2011); Tri-Etch, Inc. v. Cincinnati Ins. Co., 909 N.E.2d 997 (Ind. 2009); Miller v. Dilts, 463 N.E.2d 257 (Ind. 1984). Lastly, even when notice is late and prejudice exists, a policyholder may still prevail if a legal excuse justifies late notice (i.e., lost policy, policyholder’s lack of knowledge of insurance particulars, etc.).
After receiving notice, your insurer should respond in writing in one of three ways. First, it may defend your claim without reservation. This means your insurer agrees to provide defense and indemnity of your claim. Second, your insurer may defend your claim subject to a reservation of rights. This means that your insurer agrees to defend you, but it reserves its rights regarding an indemnity determination. In the reservation of rights letter, your insurer typically asserts various policy defenses, such as late notice, no “occurrence,” the accident resulted from “intentional conduct,” “known loss,” etc. Your insurer may also offer to have its “selected counsel” defend your claim. You might be concerned about whether the insurance company’s “selected counsel” will adequately represent you, and thus there are situations where you have the right to select your own counsel. When an insurer reserves its rights to deny coverage and there is a potential for a conflict of interest, the policyholder may select its own independent counsel, paid for by the insurer. See generally Am. Family Mut. Ins. Co. v. C.M.A. Mortg., Inc., 682 F. Supp. 2d 879, 891 (S.D. Ind. 2010); Armstrong Cleaners, Inc. v. Erie Ins. Exch., 364 F. Supp. 2d 797, 805–06 (S.D. Ind. 2005); All-Star Ins. Co. v. Steel Bar, Inc., 324 F. Supp. 160, 165 (N.D. Ind. 1971). Third, your insurance company might deny your claim entirely. This is not the end of the story, however, as you can file a declaratory judgment in court seeking coverage.
Indiana’s Rules of Insurance Policy Construction
Indiana has its own rules for insurance policy construction. Under Indiana law, “[a]n insurance policy should be so construed as to effectuate indemnification . . . rather than defeat it.” Masonic Acc. Co. v. Jackson, 164 N.E. 628, 631 (Ind. 1929). For an exclusion in an insurance policy to apply, the insurer must demonstrate that the exclusion “clearly and unmistakably” excludes coverage. Ashbury v. Ind. Union Mut. Ins. Co., 441 N.E.2d 232, 237 (Ind. Ct. App. 1981). Additionally, courts interpret policy terms not defined in the policy from the perspective of an ordinary policyholder of average intelligence. Travelers Indem. Co. v Summit Corp. of Am., 715 N.E.2d 926, 936 (Ind. Ct. App. 1999). If any ambiguity exists in a policy term, and particularly in an exclusion, courts interpret the term in favor of the policyholder and in favor of coverage. Id.
Seek Coverage Counsel
Insurance coverage law can be complex and counterintuitive. When dealing with an insurance claim, you should be persistent and cooperate with your insurance company as required. You do not have to take their word for it, however. You should consider speaking with an experienced insurance coverage attorney when issues become complicated. Do not simply ignore insurance issues because they seem complex. You could lose coverage.
This is not legal advice and is for educational use only. Please consult with legal counsel should you have any questions regarding the information discussed above.