Summary
The New Jersey Supreme Court’s decision in Templo Fuente De Vida Corp. v. National Union Fire Insurance Co. (decided February 11, 2016) upheld a carrier’s application of policy language requiring not only that notice be made within the policy period, but also that notice be made “as soon as practicable.” If a “claims made” policy requires notice of a claim to be made “as soon as practicable” or “promptly” or the like (which most standard form policies require), an insured will need to have an iron clad excuse to support delays in filing notice, even if the claim is made within the policy period, as Templo supports an insurance carrier’s denial of the claim. And, when the “claims made” policy is unambiguous and bargained-for between sophisticated parties, Templo will not require an insurance carrier to show prejudice before it may disclaim coverage on the basis of an insured’s failure to provide notice “as soon as practicable.”
Templo involved a “claims made” Directors and Officers liability insurance policy, negotiated by a broker between sophisticated parties. The policy required the claim to be made and notice of the claim to be reported within the policy period and the notice to be made “as soon as practicable,” in order to trigger coverage. The insured waited approximately six months before tendering the claim (the insured was served with an amended complaint) to the insurance carrier. The Templo court found that a six-month unexplained delay in providing notice was not “as soon as practicable.”
The court was unwilling to announce a bright-line rule on what does and does not constitute “as soon as practicable,” recognizing that each claim is a fact sensitive inquiry. Moreover, if a claim is denied for not being filed “as soon as practicable,” the Templo court ruled that an insurance carrier does not have to demonstrate that it was prejudiced by the insured’s failure to timely file the notice.
Prejudice is typically a requirement for carriers to demonstrate when involving denial of claims for late notice under an “occurrence-based” policy. The Templo court, however, found that the policy considerations for imposing the “prejudice” burden carriers did not apply to the “claims made” Directors and Officers policy at issue in this case (i.e., occurrence-based policies are not bargained for, are contracts of adhesion, and the vast majority of policy holders are unsophisticated consumers). Instead, the Directors and Officers “claims made” policy at issue in Templo was unambiguous, negotiated, and entered into between sophisticated business entities. The court stopped short of making a “sweeping statement about the strictness of enforcing the ‘as soon as practicable’ notice requirement in ‘claims made’ policies generally.” Instead, it found that under the facts in Templo, the carrier did not have to demonstrate that it was prejudiced by the insured’s failure to timely file the notice.
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