A Capehart Scatchard Blog

Claim under Insurance Policy Denied Due to Failure to Give Notice as Soon as Practicable

By on July 9, 2014 in Blog with 0 Comments

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.


About the Author

About the Author:

Ms. Ramos is an Executive Committee Member and Co-Chair of the Litigation Department at Capehart Scatchard, P.A. located in Mount Laurel, New Jersey. She is an experienced litigator with over 30 years experience handling diverse matters. Practice areas include tort defense, business litigation, estate litigation, tort claims and civil rights defense, construction litigation, insurance coverage, employment litigation, shareholder disputes, and general litigation.

For the years 2020-2023, Ms. Ramos was selected for inclusion in The Best Lawyers in America© in the practice area of Litigation - Insurance. The attorneys on this list are selected based upon the consensus opinion of leading lawyers about the professional abilities of their colleagues within the same geographical area and legal practice area. A complete description of The Best Lawyers in America© methodology can be viewed via their website at: https://www.bestlawyers.com/methodology.

In 2021, Capehart Scatchard and Ms. Ramos received the “Best Law Firm” ranking in the area of Litigation – Insurance (Metro, Tier 3) published by U.S. News & World Report and Best Lawyers®. Law firms included on the list are recognized for professional excellence with consistently impressive ratings from clients and peers. To be eligible for a ranking, a firm must have at least one attorney who has been included in the current edition of Best Lawyers in America, which recognizes the top five percent of practicing lawyers in the United States. Betsy Ramos (Litigation – Insurance) was recognized for this prestigious award in the 2021 edition. For a description of the “Best Law Firm” selection methodology please visit: https://bestlawfirms.usnews.com/methodology.aspx.

“Best Law Firms” is published by Best Lawyers in partnership with U.S. News & World Report. For a description of the selection methodology please visit: https://bestlawfirms.usnews.com/methodology.aspx.

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