Templo and Fuente sued Merl, among others. The defendants named in the complaint were served with the first-amended complaint on or about February 21, 2006.

Sometime prior to the filing of the complaint, Merl was restructured and renamed First Independent Financial Group. First Independent purchased a $1 million “claims made” directors, officers, and private company liability insurance policy from National Union Fire Insurance Company of Pittsburgh, covering the time period from January 1, 2006 through January 1, 2007.

On August 28, 2006, more than six months after being served with the first amended complaint, and after retaining counsel and filing an answer, First Independent provided notice of the claims to National Union. National Union denied coverage, asserting, among other defenses, that notice of the claims was not given to National Union “as soon as practicable.”

Templo, Fuente, and several defendants, including First Independent, reached a settlement agreement in the underlying litigation. Under that agreement, the settling defendants' liability exceeded $3 million, and they committed to pay Templo and Fuente a portion of that liability by a fixed date. To cover the remainder of the settlement amount, First Independent assigned to Templo and Fuente its rights and interests under the National Union policy.

Thereafter, the trial court dismissed Templo and Fuente's complaint as settled.

Templo and Fuente sued National Union, seeking a declaratory judgment that First Independent was an insured under the policy and that they were entitled to coverage.

Templo and Fuente moved for partial summary judgment, and National Union filed a cross-motion for summary judgment on all counts.

The trial court granted National Union's cross-motion for summary judgment and dismissed the complaint with prejudice. The trial court ruled that coverage was barred because First Independent had not provided National Union with notice of Templo and Fuente's claims “as soon as practicable,” as required by the specific terms of the policy.

In addition, the trial court concluded that National Union did not need to “show appreciable prejudice in order to avoid coverage based on a failure to meet the notice requirement of a claims made policy.”

An intermediate appellate court affirmed the trial court, noting the policy “clearly required” that notice be provided “as soon as practicable.” Accordingly, the panel held that “coverage was properly denied to the insureds and, by extension, to plaintiffs as their assignees.”

The dispute reached the New Jersey Supreme Court where, among other things, Templo and Fuente contended that there was a “growing trend in insurance law” requiring insurance companies to demonstrate prejudice before disclaiming coverage for failure to give timely notice within the period of a “claims made” policy.

The National Union Policy

Section 7 of the policy contained:

NOTICE/CLAIM REPORTING PROVISIONS

requiring that, as a condition precedent to coverage under the policy:

The Company or the Insureds

give written notice to the Insurer of any Claim made against an Insured as soon as practicable and either: (1) anytime during the Policy Period or during the Discovery Period (if applicable); or (2) within 30 days after the end of the Policy Period or the Discovery Period (if applicable), as long as such Claim is reported no later than 30 days after the date such Claim was first made against an Insured.

Section 8 of the policy stated:

The insurer does not assume any duty to defend. The Insureds shall defend and contest any claim made against them.

Notwithstanding the foregoing, the Insureds shall have the right to tender the defense of the Claim to the Insurer, which right shall be exercised in writing by the Named Entity on behalf of all Insureds to the Insurer pursuant to the notice provisions of Clause 7 of this policy. This right shall terminate if not exercised within 30 days of the date the Claim is first made against an Insured, pursuant to Clause 7 of the policy. Further, from the date the Claim is first made against the Insureds to the date when the Insurer accepts the tender of the defense of such Claim, the Insureds shall take no action, or fail to take any required action, that prejudices the rights of the Insureds or the Insurer with respect to such Claim. Provided that the Insureds have complied with the foregoing, the Insurer shall be obligated to assume the defense of the Claim, even if such Claim is groundless, false or fraudulent. The assumption of the defense of the Claim shall be effective upon written confirmation sent thereof by the Insurer to the Named Entity. Once the defense has been so tendered, the Insured shall have the right to effectively associate with the Insurer in the defense and the negotiation of any settlement of any Claim, subject to the provisions of this Clause 8.

The court reversed.

In its decision, the court held that First Independent's failure to comply with the notice provisions of the bargained-for directors and officers policy constituted a breach of the policy, and that National Union could decline coverage without demonstrating appreciable prejudice.

The court said that it recognized that a different conclusion might have been reached in other jurisdictions, but stated that its jurisprudence “has never afforded a sophisticated insured the right to deviate from the clear terms of a 'claims made' policy.” The court added that it also was not making a “sweeping statement about the strictness of enforcing the 'as soon as practicable' notice requirement in 'claims made' policies generally.”

The case is Templo Fuente De Vida Corp. v. National Union Fire Ins. Co. of Pittsburgh, Pa., No. A-18 (N.J. Feb. 11, 2016). Attorneys involved include: Mitchell B. Seidman argued the cause for appellants (Seidman & Pincus, attorneys); Andrew L. Indeck argued the cause for respondent (Weber Gallagher Simpson Stapleton Fires & Newby, attorneys; Mr. Indeck and Brad A. Baldwin, on the brief).