Attention Corporate Policyholders: Comply With All the Notice Requirements of Your Insurance Policies When Reporting a Claim or Risk Losing All Available Coverage
A recent decision by the New Jersey Supreme Court serves as a strident warning to commercial insureds to make prompt notice of claims under claims-made policies. In Templo Fuente de Vida Corp. v. National Union Fire Insurance Company of Pittsburgh, P.A., the claims-made D&O policy at issue required written notice of a claim “as soon as practicable … and … during the Policy Period.” The insured was served with an underlying complaint on February 21, 2006. It retained defense counsel and filed an answer, but did not provide notice of the claim to its insurer until August 26, 2006 — a delay of six months, yet still within the policy period. The insurer denied coverage for various reasons, including that notice was not provided “as soon as practicable.”
In a unanimous decision, the New Jersey Supreme Court affirmed the Appellate Division (and the Law Division), concluding that the policyholder had violated a “condition precedent” to coverage by failing to report the claim to the insurer “as soon as practicable.” Because of that breach, the insurer may disclaim coverage even though notice had been provided during the policy period. Moreover, the court concluded that the insurer was not required to establish it suffered any “prejudice” from the purported “late notice” in order to sustain the disclaimer of coverage, emphasizing the long-standing distinction recognized in case law between “occurrence”-based policies – where an insurer must establish it suffered a likelihood of prejudice to prevail on late notice defense in Gazis v. Miller – and “claims-made” policies – where the “appreciable prejudice” doctrine has “no application whatsoever to a ‘claims made’ policy that fulfills the reasonable expectations of the insured with respect to the scope of coverage.” Zuckerman v. National Union Fire Ins. Co.
In validating the insurer’s disclaimer, the court emphasized its finding that the plaintiff was a “sophisticated commercial insured” that “engaged in complex financial transactions” and was a “particularly knowledgeable insured, purchasing [its] insurance requirements through sophisticated brokers.” It’s worth noting, however, that the bar for a “sophisticated commercial insured” is not very high; the court based this finding in part on the fact that the insured had “at least fourteen full-time employees, two part-time employees, and a human resources department.”
The court also relied upon three critical (and apparently fatal) “concessions” made by plaintiffs: the notice provision was not ambiguous, there was no evidence proffered to justify the six month reporting delay, and the insurer was not notified “as soon as practicable”. As a result, the court concluded there was no factual dispute that the notice provided was not timely under the terms of the policy, and did not satisfy the policy’s notice requirement to be “as soon as practicable.”
Some comfort – however small – may be taken from the court’s statement that it “need not and do[es] not draw any ‘bright line’ … for timely compliance with an ‘as soon as practicable’ notice provision.” Regardless, all policyholders – particularly commercial insureds – with “claims-made” policies should carefully review the notice requirements of their policies and be particularly vigilant about compliance with the express terms, which may mean providing notice to an insurer as soon as a claim or a potential claim can be made under a potentially responsive insurance policy.