In Templo Fuente De Vida Corp. v. National Union Fire Insurance Co., 2014 N.J. Super. Unpub. LEXIS 1303 (App. Div. 2014), the plaintiffs, as assignee for Merl Financial Group (“MMI”), claimed that MMI’s insurance company wrongfully disclaimed coverage under an Officers, Directors, and Employees policy. This policy was a claims-made policy, which provided coverage only if the loss arose during the policy period and the insured gave notice to the carrier as soon as practicable. The issues in this case concerned whether notice was given “as soon as practicable” and whether the carrier had to show prejudice by the insureds’ failure to notify it of the claim as soon as practicable.
The underlying matter involved a claim against MMI and its principals, alleging failure to provide promised funding to plaintiffs for a construction project. Plaintiffs claimed that, due to this funding failure, they lost the project and incurred over $1,000,000 in an attempt to purchase the property for this project. MMI claimed that it was entitled to coverage for this claim under its policy with National Union Fire Insurance Co. (“National Union”). MMI reached a settlement with the plaintiffs and assigned its claim for coverage against its carrier to the plaintiffs.
While MMI was served with the plaintiffs’ complaint on February 21, 2006, it did not provide notice of the complaint to National Union until 6 months later on August 28, 2006. The carrier disclaimed coverage, stating that the insured failed to provide notice of this suit “as soon as practicable,” as required by the policy.
The trial court agreed with the carrier that the failure to give notice of the claim for 6 months breached the “as soon as practicable” policy provision. It relied on a prior case which found that a 5 ½ month lapse in providing notice breached a similar provision.
The trial court also rejected the plaintiffs’ argument that National Union had to show that it was prejudiced by its insureds’ failure to provide timely notice. It pointed out that under New Jersey case law, no prejudice need be shown for a claims made policy before a carrier can disclaim.
On appeal, the plaintiffs renewed their arguments. The Appellate Division rejected both arguments. It found that the policy language was clear that notice of the claim must be provided within the policy period and as soon as practicable. Here while notice was provided during the policy period, it was not provided as soon as practicable.
The Appellate Division also found that no prejudice need be shown before the carrier could disclaim. It noted that there are two different types of insurance policies – “claims made” and “occurrence” – and they differ based on how coverage is triggered. For claims made policies, coverage depends on when the insured notifies the insurer of the claim.
Under “occurrence” policies, coverage depends on when the act or omission giving rise to the claim occurs. For these types of policies, when the insured does not provide timely notice, the insurer must establish prejudice to avoid coverage. However, that is not the case for claims made policies. That would result in an unbargained for expansion of coverage.
The Appellate Division found no merit to the plaintiffs’ attempt to distinguish prior case law, holding that no prejudice need be shown by the carrier if an insured fails to timely notify it of a claim under a claims made policy. Hence, it upheld the trial court’s order granting summary judgment to National Union, finding that there was no coverage under its policy.
