InTemplo Fuente De Vida Corp., et al. v. National Union Fire Ins. Co. of Pittsburgh, Pa., A-18-14, 074572 (February 11, 2016) the New Jersey Supreme Court held that an insured’s failure to timely comply with the notice provision in a “claims made” Directors & Officers liability policy was a breach of the policy, and the insurer could deny coverage without having to demonstrate prejudice. The Court affirmed lower court rulings that the insured’s unexplained delay of six months in notifying the insurer of the underlying claim violated the insurance policy’s requirement that notice be given “as soon as practicable,” even though notice was given within the policy period.
In doing so, the Court declined to extend to claims made policies its prior holding in Cooper v. Government Employees Ins. Co., 51 N.J. 86, 94 (1968), that in occurrence policies an insurer must show both breach of a policy due to late notice of a claim as well as prejudice due to such late notice of a claim. Rather, the Court re-affirmed its jurisprudence in Zuckerman v. National Union Fire Ins. Co., 100 N.J. 304, 324 (1985), where it had distinguished claims made policies from occurrence policies and ruled that the “Cooper doctrine” had no application to a claims made policy “that fulfills the reasonable expectations of the insured with respect to the scope of coverage;” in other words, the parties’ expectations about the notice provision agreed to in the policy. Here, where the insured did not assert that the notice provision was ambiguous, and admitted that notice was late under that provision without providing any explanation for the delay, the Court reaffirmed the public policy bases for the distinction in Zuckerman, and refused to apply the Cooper doctrine to a claims made policy where notice was given late, even though within the policy period.
In Templo Fuente, the insured provided notice of the claim to National Union six months after being served with the first amended complaint in the underlying action, and after retaining counsel and filing an answer. National Union denied coverage on the grounds that notice of the underlying claims was not given “as soon as practicable” as required by the notice provision of the D&O policy. The insured filed an action for a declaratory judgment seeking coverage. The trial court dismissed the insured’s action on summary judgment, finding that the six month delay in notice was not “as soon as practicable” under the terms of the D&O policy, and that the insurer need not demonstrate prejudice in this circumstance in order to deny coverage based on such late notice. The Appellate Division affirmed, noting that the policy required notice both within the policy period and “as soon as practicable.”
The insured in Templo Fuente argued that the Appellate Division improperly expanded the ruling in Zuckerman by permitting insurers to deny coverage without showing prejudice, not only where the insured gives notice of the claim outside of the policy period, as happened in Zuckerman, but also when the insured fails to give notice of the claim within the policy period, as here. Templo Fuente, at 10. The insured argued that the Court should restrict the holding of Zuckerman to instances where the insured reports a claim outside of the policy period. The Supreme Court refused to so limit Zuckerman.
The Court stated that because “plaintiffs fail to assert why the delay occurred, let alone why we should consider [the insured's] reporting of the claims to be ‘as soon as practicable’ under the ‘circumstances,’ there is no factual dispute that the notice was not timely,” id. at 23, concluding that the unexplained six-month delay did not satisfy the notice requirement. The Court further found that because the policy was not a contract of adhesion, “but was agreed to by sophisticated parties, the insurance company was not required to show that it suffered prejudice before disclaiming coverage on the basis of the insured’s failure to give timely notice of the claim.” Id. at 2. For these reasons, the Court found that there were no equitable concerns bearing upon the analysis of the “as soon as practicable” notice requirement of a D&O claims made policy, because the policy holders here were particularly knowledgeable. Id. at 26.
The takeaway is that in New Jersey, where an insured is obligated under a claims made policy to provide notice of a claim “as soon as practicable,” an insurer need not show prejudice in order to deny a claim on the basis that late notice violated that policy provision, even where notice was given within the policy period.