A New Jersey appellate court has held that coverage under a claims-made policy is barred by the insured’s unexplained six month delay in notice and that the insurer is not required to show prejudice to deny coverage on late notice grounds under a claims-made policy.  Templo Fuente De Vida Corp. v. Nat’l Union Fire Ins. Co. of Pitt., Pa., 2014 WL 2533810 (N.J. Super. Ct. App. Div. June 6, 2014).  The court also found that the insurer was not estopped from relying on the late notice defense.

The insured, a mortgage firm, sought coverage for a lawsuit arising out of the insured’s alleged failure to secure a real estate loan under a claims-made D&O policy with a policy period of January 2006 to January 2007.  The insurer denied coverage based on a number of grounds without specifically denying coverage on late notice grounds.  After a settlement and assignment, the plaintiff-assignee filed coverage litigation.  The trial court granted summary judgment in favor of the insurer, holding that coverage was barred because the insured mortgage firm did not provide notice of the claim “as soon as practicable.”

The appellate court affirmed, noting that it had previously found that a delay of five and one-half months in notifying an insurer was not “as soon as practicable” under the terms of a similar policy, and that the corporation here had failed to produce any evidence explaining the six month delay.  The court also held that because the policy was a claims-made policy, the insurer did not have to show prejudice to invoke the notification requirement of the policy.  The court explained that to hold otherwise would result in “an unbargained-for expansion of coverage, gratis, resulting in the insurance company’s exposure to risk substantially broader than that expressly insured against in the policy.”  Finally, the court rejected the plaintiff’s argument that the insurer should be estopped from denying coverage because it did not specifically raise late notice as a defense in its three disclaimer letters.  The court found that the insurer never conceded in its correspondence that the notice requirements had been met and gave no indication that the claim would ever be accepted.