Stalker Vogrin Bracken Frimet

Transcription

1 Stalker Vogrin Bracken Frimet NEW JERSEY APPELLATE COURT HOLDS THAT INSURED S FAILURE TO PROVIDE NOTICE AS SOON AS PRACTICABLE BARS CLAIMS-MADE COVERAGE DESPITE LACK OF PREJUDICE TO INSURER I. SUMMARY OF HOLDING By Timothy W. Stalker and Silje M. Roalsvik 1 The New Jersey Appellate Court in Templo Fuente De Vida Corp. v. National Union Fire Insurance Company of Pittsburgh, Pa, 2014 WL (N.J. App. Div. June 6, 2014) ruled that there is no coverage under a claims-made policy where a policyholder failed to provide notice of a complaint as soon as practicable, even where the policyholder provided the notice within the policy period and where there was no showing of prejudice to the insurer. In the clear language of the ruling the New Jersey Appellate Court has held: The undisputed facts before this court show that an unexplained six month delay exists between the time when the claims were first made (February 21, 2006) and when [defendant Insurer] was [first given] written notice of the claims (August 28, 2006).Therefore, this court finds as a matter of law [that] the assigning insureds did not provide written notice of the claims against them to [defendant insurer] as soon as practicable, and therefore, are not entitled to coverage. Furthermore, the court rejected plaintiffs arguments that defendant insurer had to show that it was prejudiced by the insureds failure to notify them of the claim as soon as practicable before denying coverage. The judge held no prejudice need to be shown in claims-made [as opposed to occurrence] policies. II. BACKGROUND Templo Fuente De Vida Corp. ( Templo ), a New Jersey corporation that operates a church and child day care center, decided to relocate and construct a new church and day care center. In June 2002, Templo entered into an agreement with Morris Mortgage, Inc. ( MMI ) under which MMI agreed to secure the loans that Templo needed to purchase the land and complete the project. Templo created Fuente Properties, Inc. ( Fuente ) to acquire the property. In September 2002, Templo and Fuente entered into a contract to purchase property in Bergen County, New Jersey for $3,200,000. A $320,000 down payment was made. MMI failed to promptly secure the necessary financing and, as a result, Templo and Fuente paid the seller an additional $130,000 to extend the mortgage commitment deadline while financing could be secured. 1 Mr. Stalker is a partner with Stalker, Vogrin, Bracken & Frimet with over 30 years of industry experience. Ms. Roalsvik is an associate in the firm, concentrating her practice on reinsurance and complex coverage issues. New York Pennsylvania New Jersey California

2 In February 2003, MMI alleged it had obtained funding for the project through Merl Financial Group, Inc. ( Merl ), which ultimately agreed to provide a $20,900,000 loan to Templo and Fuentes in return for a $209,000 commitment fee. In September 2003, the loan commitment was revised and an early commission fee was paid so that Templo and Fuentes could obtain early funding of the loan in order to close on the property because the seller of the property had issued a time is of the essence notice to Templo and Fuentes. This obligated them to close on the property by October 8, Merl, however, advised Templo and Fuentes that it could not secure the necessary funds until November 24, Templo and Fuentes paid the seller an additional $100,000 to extend the closing deadline. Without notifying Templo and Fuentes, Merl assigned the loan to affiliated Heritage Capital Corporation ( Heritage ), which in turn assigned it to affiliated Independent Capital Credit Corporation ( Independent ). The promised loan funds were ultimately not provided and, as a result, the seller refused to extend the closing date. Templo and Fuentes, after having expended a substantial amount of money, were unable to complete the purchase. On November 24, 2003, Merl transferred its interest to First Independent Financial Group ( First Independent ) and continued its operation under the First Independent name. In late 2005, National Union Fire Insurance Company of Pittsburgh, Pa ( National Union ) issued a claims-made Directors and Officers liability insurance policy to First Independent for a policy period that ran from January 1, 2006 through January 1, 2007 (the Policy ) providing First Independent exclusively with coverage. The Policy also contained the following notice provision: (a) The Company or the Insureds shall, as a condition precedent to the obligations of the Insurer under this policy, 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 [thirty] days after the end of the Policy Period or the Discovery Period (if applicable), as long as such Claim is reported no later than [thirty] days after the date such Claim was first made against an Insured. [Emphasis added] III. BRIEF PROCEDURAL HISTORY On November 22, 2005, Templo and Fuente filed a complaint, alleging breach of contract and tort claims against MMI, MMI s principal, Merl, Merl s affiliates, including Heritage Capital and their principals. The complaint was never served. On December 2, 2005, Templo and Fuente filed an amended complaint adding two (2) John Doe defendants. The amended complaint was served and First Independent acknowledged 2

3 receipt of the complaint on February 21, First Independent did not provide notice of the complaint to National Union Fire Ins. Co. until August 28, National Union declined coverage to First Independent on September 11, 2006, on March 6, 2007 and lastly on March 30, Templo and Fuentes filed a second amended complaint on June 29, 2007, adding additional defendants and claims. For the first time, it was noted that Merl was a subsidiary and affiliate of First Independent. On October 2, 2007, a third amended complaint was filed specifically adding First Independent as a defendant. Templo and Fuentes entered into a settlement agreement for an amount of $3,613, with the named defendants in the third amended complaint on June 5, IV. SUPERIOR COURT OF NEW JERSEY, LAW DIVISION, HUDSON COUNTY, DOCKET NO. L On June 2, 2011, Templo and Fuentes filed a complaint against National Union, seeking a declaratory judgment granting them coverage under the Policy. Both parties filed motions for summary judgment, and following oral argument, on February 8, 2013, the judge issued a written decision, granting defendant National Union s motion for summary judgment and denying plaintiffs Templo and Fuentes motion. The judge found the assigning insureds did not provide National Union with notice of Templo and Fuentes claims as soon as practicable and, therefore, coverage was barred under the specific terms of the Policy. The judge, relying on Associated Metals & Minerals Corp. v. Dixon Chemical & Research, Inc., 82 N.J. Super. 281, (App. Div. 1963), cert. denied, 42 NJ 501 (1964) stated, [T]he court has no choice but to find that the assigning insureds failed to provide written notice to [defendant National Union Fire Ins. Co.] as soon as practicable, and therefore, were not entitled to coverage. The judge rejected Templo and Fuentes arguments that National Union must show it was prejudiced by the assigning insureds failure to notify them of the claim as soon as practicable before denying coverage. Relying on the Supreme Court s decision in Zuckerman v. National Union Fire Insurance Co., 100 N.J. 304, 324 (1985), the trial court held that no prejudice need to be shown. Templo and Fuentes moved for reconsideration, asserting the judge failed to consider that National Union should be estopped from denying coverage because it did not specifically raise the insureds failure to provide notice of the claim as soon as practicable in its three declination of coverage letters. The trial court denied the motion, finding that the National Union responded to the assigning insureds initial claim within 2 The Policy provides coverage for wrongful acts, which is defined in the policy as any breach of duty, neglect, error, misstatement, misleading statement, omission or act by any such insureds in their respective capacities as such, or any matter claimed against such Insured solely by reason of their status as directors, officers or employees of First Independent. 3

4 three weeks and continually denied coverage since that time. Templo and Fuentes appealed. V. SUPERIOR COURT OF NEW JERSEY - APPELLATE DIVISION AFFIRMS Following New Jersey law on the issue, the appellate court found that Policy was clearly written, and as such, its terms must be enforced as written. Like the trial court, the Appellate Division rejected Templo and Fuentes argument that a defendant insurer can only disclaim coverage if it can demonstrate it was prejudiced by the insured s failure to provide notice as soon as practicable. Under claims-made policies (unlike occurrence polices), coverage depends on when the insured notified the insurer of the claim. The Policy issued by National Union made coverage dependent on the insured(s) providing notice of the claim within the policy period and as soon as practicable, and was clearly a claims made policy. The Appellate Division then distinguished between claims-made and occurrence policies and the issue of notice and prejudice: Under "occurrence" policies, coverage depends on when the act or omission giving rise to the claim occurred. Id. at 518. For occurrence policies, when the insured does not provide timely notice, the insurer must establish prejudice in order to avoid coverage. Cooper v. Gov't Emps. Ins. Co., 51 N.J. 86, 94, 237 A.2d 870 (1968). However, that is not the case for claims made policies, like the one involved in this case. In Zuckerman, the Supreme Court distinguished between claims made policies and occurrence policies, holding that for claims made policies, an insurer need not show that it was prejudiced by an insured's failure to provide notice "as soon as practicable." Zuckerman, supra, 100 N.J. at 324. As a result, the Appellate Court affirmed the trial court s decision in favor of National Union. VI. PRACTICE TIPS I. Under New Jersey law, an insured s failure to provide notice as soon as practicable bars claims-made coverage, despite lack of prejudice to insurer and even if the matter is reported during the applicable policy period. As such, insurers may want to consider including policy language similar to the following: A. The Insured(s) shall, as a condition precedent to the obligations of the Insurer under this policy, 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 4

5 2. Within [thirty] days after the end of the Policy Period or the Discovery Period (if applicable), as long as such Claim is reported no later than [thirty] days after the date such Claim was first made against an Insured. II. It does not appear the New Jersey law has change with respect to occurrence based policies, requiring insurers to prove prejudice if notice was not provided as soon as practicable by the policyholder. For more information on this case please feel to contact us at or SVBF 5