On February 11, 2016, New Jersey’s highest court held that National Union Fire Insurance Co. of Pittsburgh, Pennsylvania, (“National Union”) could refuse coverage for Templo Fuente De Vida Corp. and Fuente Properties Inc.’s settlement with policyholder First Independent Financial Group under a “claims-made” directors and officers policy because First Independent did not provide notice “as soon as practicable.”
National Union insured First Independent under a “claims made” policy, which provided coverage for claims made against the insured during the policy period. The policy required that First Independent provide notice to National Union “as soon as practicable.” However, First Independent did not notify National Union of Templo’s claims until six months after it first learned of them. National Union subsequently denied coverage on the basis that it did not receive notice of the claims “as soon as practicable” as required under the policy. In response, First Independent argued that National Union could deny coverage only if it could demonstrate prejudice as a result of the untimely notice.
The New Jersey Supreme Court agreed with National Union, finding that a showing of prejudice — which is often needed to disclaim coverage under an “occurrence-based” policy — is not required in order to avoid coverage under a “claims made” policy. The court reasoned that the rule applying to policyholders under “occurrence-based” policies is intended to account for the relative lack of sophistication of policyholders who are unfamiliar with policy language. The court found that First Independent, however, was a sophisticated insured and did not have a right to deviate from the clear terms under a “claims-made” policy.
In a recent Law360 article, NJ Justices Send ‘Warning Call’ To Insureds On Late Notice, Hunton & Williams Insurance Litigation Partner Walter J. Andrews comments on the decision.