November 2014
Practice Group:
Insurance Coverage
New Jersey Supreme Court Will Review Templo
Fuente Decision on Insureds’ Duty to Provide Notice
as Soon as Practicable under a Claims-Made and
Reported Policy
Insurance Coverage Alert
By Frederic J. Giordano, Robert F. Pawlowski, and Erica S. Mekles
Introduction
The Supreme Court of New Jersey will hear an appeal of the Appellate Division’s decision in
Templo Fuente De Vida Corp. and Fuente Properties, Inc. v. National Union Fire Insurance
Company of Pittsburgh, Pa., 2014 WL 2533810 (N.J. App. Div. June 6, 2014), which
interpreted the notice provision of a claims-made and reported directors and officers liability
insurance policy. There, the intermediate court held that when a claims-made and reported
policyholder reports a claim late, but nonetheless during the policy period, the insurance
company properly may deny the claim based on late notice without a showing of prejudice.
We recently published an article in the New Jersey Law Journal reporting the inconsistency
in the opinion: “[Under this ruling,] an insurance company can avoid coverage for a claim
made and reported, albeit late, within the term of a claims made and reported policy, but
cannot avoid coverage for the same claim reported late under an occurrence policy absent a
showing of ‘appreciable prejudice.’” Frederic J. Giordano et al., Late Filing Under a ClaimsMade vs. An Occurrence-Based Policy: Appellate Division Rejects Precedent, NEW JERSEY
LAW JOURNAL (July 24, 2014). Now, New Jersey’s high court is poised to reconcile that
inconsistency. Specifically, the question before the Court is: “Did the plaintiff-insured provide
notice to the defendant-insurer of the claim for coverage ‘as soon as practicable’ under the
circumstances; and, if not, was the defendant-insurer required to show that it was prejudiced
by the late notice to avoid coverage?” Track Supreme Court Appeals,
http://www.judiciary.state.nj.us/calendars/sc_appeal.htm (posted Oct. 24, 2014). This is an
important decision for policyholders because, if upheld, policyholders risk forfeiture of
coverage based on a ruling that a claim was not reported “as soon as practicable,”
regardless of prejudice.
Background
Templo Fuente De Vida Corp. and Fuente Properties, Inc. (“Templo”) breached a contract to
purchase property and forfeited over $1 million in down payments. Templo sued its lenders
in contract and tort for failing to fund the purchase pursuant to a loan agreement. Templo
settled its claims against the lenders, who assigned to Templo their coverage rights under a
directors and officers liability insurance policy (the “Policy”) sold by National Union Insurance
Company of Pittsburgh, Pa. (“National Union”).
New Jersey Supreme Court Will Review Templo Fuente Decision on Insureds’
Duty to Provide Notice as Soon as Practicable under a Claims-Made and
Reported Policy
The coverage dispute arose in connection with Templo’s efforts to secure coverage under
the Policy, which National Union wrote on a claims-made and reported basis. The Policy
covered loss caused by the wrongful acts of directors, officers, and employees and required
notice of a claim “as soon as practicable” and either during the policy period or within 30
days after the policy period (referred to herein as “dual reporting requirements”). Although
the policyholders reported the claim within the policy period, they did not provide such notice
until six months after they received the complaint.
National Union disclaimed coverage, stating that the policyholders did not provide notice as
soon as practicable, and the trial court sustained its coverage denial. On appeal, the
Appellate Division rejected the Supreme Court precedent that a carrier must demonstrate
“appreciable prejudice” to sustain a late notice defense, stating that these prior decisions
were inapplicable to claims-made policies.
Petition for Certification
Templo’s Petition for Certification highlights an issue of first impression in New Jersey:
whether an insurance company must show appreciable prejudice in disclaiming coverage
when a claim is made against its policyholder during the policy period and the policyholder
reports the claim during the policy period—just not “as soon as practicable.” Templo argues
that all other jurisdictions analyzing notice under a claims-made and reported policy have
required a showing of appreciable prejudice to sustain a coverage denial. According to
Templo, “[t]hese cases hold that where there are dual reporting requirements and the claim
meets the objective criteria in that it was reported within the policy period, to defeat the
objective criteria and the claim on the grounds that the claim was not made ‘as soon as
practicable,’ the insurer must show prejudice.” Thus, Templo argues that the Appellate
Division erred in relying instead on inapposite and factually distinguishable cases where the
policyholder either did not have dual reporting requirements or failed to provide notice during
the reporting period.
Conclusion
The Supreme Court of New Jersey’s decision on Templo’s appeal could have far-reaching
implications to policyholders and their notice responsibilities under claims-made and reported
policies. Accordingly, policyholders should pay close attention to this case.
Authors:
Frederic J. Giordano
frederic.giordano@klgates.com
+1.973.848.4035
Robert F. Pawlowski
robert.pawlowski@klgates.com
+1.973.848.4032
Erica S. Mekles
erica.mekles@klgates.com
+1.973.848.4019
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New Jersey Supreme Court Will Review Templo Fuente Decision on Insureds’
Duty to Provide Notice as Soon as Practicable under a Claims-Made and
Reported Policy
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