Carla Uhlarik, J.D., 2019, Indiana University Robert H. McKinney School of Law; B.A. 2013, University of Michigan – Ann […]
by Charles B. Daugherty
Easter & Cavosie
10455 N. College Ave.
Indianapolis, IN 46280
For centuries, public entities have employed competitive bidding to form construction contracts for public projects. Public entities often prefer competitive sealed bidding because it promotes both the lowest and best price, and fair and open competition among all citizens. Indeed, the Indiana General Assembly enacted Indiana’s competitive bidding statute “to safeguard the public against fraud, favoritism, graft, extravagance, improvidence and corruption, and to insure honest competition for the best work or supplies at the lowest reasonable cost.”  That said, the competitive bidding system has faults. Owners sometimes use pre-bid arrangements and procedures to address perceived flaws in the competitive bidding process. Labor issues have been the subject of such pre-bid arrangements and procedures.
The ability of a policyholder to recover pre-tender costs is an evolving area of insurance coverage law. In Dreaded, Inc. v. St. Paul Guardian Insurance Company, the Indiana Supreme Court held that, under the facts of that case, a policyholder could not recover the legal expenses it incurred defending itself from a claim asserted by the Indiana Department of Environmental Management (“IDEM”) prior to giving notice of or tendering the claim to its insurer. . And while Dreaded was limited to the facts of that case, the Indiana Court of Appeals in Travelers Insurance Company v. Maplehurst Farms, Inc. interpreted Dreaded to mean that pre-tender costs are simply not recoverable. . The courts’ decisions in Dreaded and Maplehurst rested, in part, on two grounds: (1) an insurer’s duty to defend its policyholder does not arise until the policyholder provides notice of the claim;  and (2) the insurance policy provision requiring a policyholder to give notice of a claim to the insurer is a condition precedent to coverage. .
Indiana courts should reconsider the holdings in Dreaded and Maplehurst. . These holdings result in the forfeiture of coverage, which is unfair and disfavored under Indiana law,  and ignore the realities of long-tail environmental claims. . To begin, Dreaded’s explanation of the duty to defend is incomplete. An insurer’s duty to defend its policyholder is not triggered by notice of the claim, but rather by the existence of a potentially covered claim. .