Why it matters

Policyholders beware: An intermediate New Jersey appellate court recently rejected a policyholder’s coverage claim based on late - notice even though the claim was made against the policyholder and reported to the insurer during the policy period. Under the director’s and officer’s policy at issue, not only did the claim have to be made and reported during the policy period, but notice had to be provided to the insurer “as soon as practicable.” The court held that a six-month delay by the policyholder in providing notice was not “as soon as practicable.” The court further rejected the policyholder’s argument that the insurer should be required to prove it was prejudiced by the six-month delay. As such, this is a caution to policyholders to give prompt notice.

Detailed Discussion

The period of the claims-made Directors’ & Officers’ liability policy at issue was January 1, 2006, to January 1, 2007. The policy required the policyholder to give written notice of a claim “as soon as practicable” and during the policy period.

A complaint was served on the policyholder on February 21, 2006. The policyholder did not provide written notice of the complaint to its insurer National Union until August 28, 2006, and there was no explanation for the delay.

The New Jersey Appellate Division held that the six-month delay between the policyholder’s receipt of the complaint and the written notice to the insurer was not “as soon as practicable.”

“The policy . . . clearly required that notice be provided both within the policy period and as soon as practicable,” the court explained. “Because the insureds did not meet both of the notice requirements that were unambiguously expressed in the policy, we conclude that coverage was properly denied to the insureds.”

The court also rejected the policyholder’s argument that the insurer should have been required to show that it was prejudiced by the six-month delay. The court held, instead, that because this was a claims-made policy, the “prejudice” standard that applies under “occurrence” coverage has “no application whatsoever” to claims-made coverage. Although this distinction seems to be one without a difference in this context, the court believed it was bound by New Jersey Supreme Court precedent.

To read the opinion in Templo Fuente de Vida Corp. v. National Union Fire Insurance Co., click here.