Extending the reach of its holding in Zuckerman v. National Union Fire Ins. Co., 100 N.J. 304 (1985), the New Jersey Supreme Court in Templo Fuente De Vida Corp. v. National Union Fire Ins. Co. of Pittsburgh, Pa., No. A-18 (N.J. Feb. 11, 2016), ruled an insurer may deny coverage under a “claims made” policy based on late notice without having to show it was prejudiced by the late notice — even if the claim is made during the insurer’s policy period.
In Templo Fuente, National Union issued a Directors and Officers liability policy to First Independent, a financing company. The National Union policy required that “as a condition precedent to coverage” First Independent notify National Union of any claims made against it “as soon as practicable,” and no later than 30 days after the claim had been made. National Union relied on this language to deny coverage to First Independent for a lawsuit filed against it by Temple Fuente, who alleged First Independent had failed to provide promised financing for a real estate transaction, because First Independent waited six months to notify National Union of the lawsuit. First Independent settled the lawsuit with Templo Fuente, wherein First Independent paid a portion of the settlement amount and then assigned to Templo Fuente its rights under the National Union policy to recover the remaining amount.
Based on its assignment, Templo Fuente then filed a declaratory judgment against National Union. The trial court granted National Union summary judgment , concluding First Independent failed to provide timely notice of the complaint, and relying on Zuckerman, ruled National Union was not required to demonstrate it was prejudiced by the late notice. The Appellate Division affirmed. The Supreme Court also affirmed, following its rationale from Zuckerman and acknowledging the “conceptual differences” between “claims made” policies and “occurrence” policies, particularly as it relates to the different roles played by the notice requirements contained in each kind of policy.
The Supreme Court’s decision in Templo Fuente takes its analysis in Zuckerman a step further by noting the difference in the judicial treatment of these two policy types “was due in large part to the differences between the policyholders themselves.” With respect to “occurrence” policies, the Supreme Court noted since the vast majority of policyholders were unsophisticated consumers unaware of the policy’s notice requirements, New Jersey courts had found strict adherence to the policies’ notice provisions “would result too harshly against [such insureds].” The court also found these same “equitable concerns” were less controlling where the policyholders are “particularly knowledgeable insureds, purchasing their insurance requirements through sophisticated brokers,” since in that instance, the court observed the insureds were “much better able to deal with the insurers on an equal footing.”
The court explained First Independent was an incorporated business entity engaging in complex financial transactions and obtained the National Union policy through a broker. It further noted the company had at least 14 full-time employees, two part-time employees, and a “human resources department.” Based on these characteristics, the court concluded First Independent was a “sophisticated insured,” and was on “equal footing” with National Union in terms of the parties’ negotiation over the policy. As such, the court enforced National Union policy’s provisions concerning notice as written, without adding the requirement that National Union demonstrate prejudice as a result of the late notice.
The court’s unwillingness to afford sophisticated insureds the same judicial protections typically provided to unsophisticated insureds appears to indicate recognition by the court that the bargaining power between insurers and sophisticated policyholders is more at equipoise, and thus, these parties’ contracts cannot accurately be classified as contracts of “adhesion.”