Case Notes

Prior to he filing of the complaint, First Independent purchased a $1 million “claims made” directors and officers policy from the defendant, National Union Fire Insurance Company of Pittsburgh (“National Union”), with a policy period from Jan. 1, 2006 through Jan. 1, 2007. In August 2006, more than six months after being served with the complaint, First Independent provided notice of the claim to National Union. The latter denied coverage, asserting, among other defenses, that notice of the claim was not provided “as soon as practicable,” as required under the policy. Id. at *1-2.

Subsequently, Fuente entered into a settlement with First Independent and other defendants, under which First Independent assigned its rights under the National Union Policy to Fuente in order to cover part of the settlement. Fuente thereafter initiated a declaratory judgment action against National Union seeking coverage under the policy. The trial court granted summary judgment in favor of National Union, holding that “First Independent failed to provide National Union with notice of [Fuente's] claims 'as soon as practicable,' as required by the specific terms of the policy.” Id. at *3. Relying on Zuckerman v. Nat'l Union Fire Ins. Co., 495 A.2d 395 (N.J. 1985), the trial court also held that National Union did not need to show prejudice in order to avoid coverage. The Appellate Division affirmed, also relying on Zuckerman.

On Certification to the Supreme Court of New Jersey, Fuente claimed that the lower courts erred in finding that the six-month delay in reporting did not comply with the policy's “as soon as practicable” requirement, arguing that such an inquiry is fact sensitive. The court rejected this argument and found that no factual dispute existed, noting that “[Fuente] did not provide the trial court with any evidence to justify First Independent's reporting delay” and that “[Fuente] fail[s] to assert why the delay occurred, let alone why we should consider First Independent's reporting of the claims to be 'as soon as practicable' under the 'circumstances.'” Id. at *9.

Having concluded that notice was untimely, the court went on to hold that National Union was permitted to disclaim coverage without showing that it was prejudiced by the delay. In making this determination, the court declined to impose a “bright line” rule with respect the notice requirement in “claims made” policies. Instead, the court focused on the nature of the insured, pointing out that First Independent “was an incorporated business entity that engaged in complex financial transactions.” Id . at *10. With respect to “claims made” directors and officers policies, the court noted that policyholders “are particularly knowledgeable insureds, purchasing their insurance requirements through sophisticated broker” and that insurers are “dealing with a more sophisticated clientele” better able to be on equal footing with insurers. Id. at *11.

In closing, the court acknowledged that although a different conclusion may have been reached in other jurisdictions, New Jersey “jurisprudence has never afforded a sophisticated insured the right to deviate from the clear terms of a 'claims made' policy.” Id.

Daren S. McNally, a member of this newsletter's Board of Editors, is the Managing Partner, Matthew I. Gennaro is Senior Counsel, and Shane T. Calendar is an Associate in the New Jersey office of Clyde & Co US LLP.