NJ: National Union Avoids Claim Due To Late Notice; Need Not Show Prejudice

NEW JERSEY,  Feb. 11 – The New Jersey Supreme Court has ruled that National Union Fire Ins. Co. of Pittsburgh need not demonstrate prejudice  to avoid liability to provide defense and indemnity to an insured who reported the underlying claim six months late,  in violation of the policy’s notice requirements.  In Templo Fuente De Vida Corp. v. National Union Fire Ins. Co. of Pittsburgh, the Court ruled that the insurer did not have to defend or indemnify its insured, First Independent Financial Group, in a lender liability suit brought by putative borrowers.

The policy provided that First Independent provide notice of any claim made against it  during the policy period, or within 30 days following the end of the policy period, provided the notice was no later than 30 days following the insured’s initial notice of the claim.    First Independent did not report the claim at issue  until six months after it was sued, had hired its own counsel, and answered the complaint.  National Union denied coverage  on grounds of late notice, and First Independent settled the underlying claims in part, assigning to the plaintiffs its coverage claims against National Union.

The assignee plaintiffs filed a declaratory judgment action, and National Union was granted summary judgment based on the late notice defense.  An intermediate appeals court affirmed the ruling in favor of National Union.

In affirming the ruling in favor of National Union, the Court undertook an analysis of the differences between claims made policies and occurrence policies, and wrote:

Claims made policies commonly require that the claim be made and reported within the policy period, thereby providing a fixed date after which the insurance company will not be subject to liability under the policy. … Claims made policies also tend to have an additional notice of claim provision phrased in terms of the insured notifying the insurer of a claim or potential claim promptly or the like[.] 13 Couch on Insurance 3d 186:13 (2009).

The prompt notice requirement and the requirement that the claim be made within the policy period in claims made policies maximiz[e] the insurer s opportunity to investigate, set reserves, and control or participate in negotiations with the third party asserting the claim against the insured and mark the point at which liability for the claim passes to an ensuing policy,

The Court also held that in the claims made context, prejudice was not an element of establishing the late notice defense:

[W]hen First Independent began defending against plaintiffs claims without first notifying National Union, an action explicitly barred by the terms of the policy, it violated a condition precedent of timely notice to National Union, and thus breached the policy’s express condition of notice of a claim in order for coverage to attach. We decline plaintiffs invitation to read the insurance policy at issue as a contract of adhesion, or engage in a strained construction to support the imposition of liability or write a better policy for the insured than the one purchased…

 Accordingly, we hold that First Independent s failure to comply with the notice provisions of the bargained for Directors and Officers policy constituted a breach of the policy, and National Union may decline coverage without demonstrating appreciable prejudice. We recognize that a different conclusion may have been reached in other jurisdictions, but our jurisprudence has never afforded a sophisticated insured the right to deviate from the clear terms of a claims made policy.

The Court unanimously upheld judgment as a matter of law in favor of National Union.

Templo Fuente De Vida Corp. v. National Union Fire Ins. Co. of Pgh., (N.J. 2016)

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