Failure to Strictly Comply With the Express Terms of the Notice Provisions in a Claims-Made Insurance Policy Will Forfeit Available Coverage

The Third Circuit’s recent decision in Atlantic Health System Inc. v. National Union Fire Insurance Company of Pittsburgh confirms the importance of strictly following the notice requirements of a claims-made policy and the relevance of the parties’ course of prior and subsequent performance on the ultimate interpretation of allegedly ambiguous policy terms and conditions. In this case, the failure to strictly comply with the notice requirements resulted in AHS retaining liability for more than $2 million of defense costs and settlement payments.

The Third Circuit affirmed the District Court of New Jersey’s decision denying AHS insurance coverage for a claim that was “submitted” under two separate claims-made policies issued by National Union. About three months prior to the expiration of the first policy, AHS received a letter enclosing a draft complaint alleging various anti-trust violations. The complaint was filed about two months later, and prior to the expiration of the first policy. In its renewal application submitted to National Union during their first policy-period, AHS answered several questions that indicated it was involved in on-going litigation. Thereafter, the first policy expired and a renewal policy was issued by National Union. On July 23, 2004, after expiration of the first policy, AHS sent a “First Notice of Loss” letter to National Union to request coverage under its current renewal insurance policy. National Union denied this claim because the renewal applications indicated that AHS had notice of the underlying claim before the renewal policy began, and therefore could not be considered as a claim made against AHS during the renewal policy period. AHS then submitted a second letter entitled “First Report of a New Loss” to National Union under the first policy. National Union also rejected this request for coverage because the first policy had already expired and because notice wasn’t given within the 30-day notice period under the express policy terms for reporting a claim.

The Third Circuit found that under New Jersey’s insurance law, “strict adherence to the claims reporting provisions in a claims-made policy is essential.” Because the express terms of the first policy required that notice of a claim be submitted to a specific address, the court found that submission of information regarding the litigation in the renewal application to a different address, while clearly indicating that the case was on-going during the first policy period, was insufficient to satisfy the express terms of the notice requirements. The Third Circuit also concluded that under New Jersey law the course of performance among parties is relevant to the interpretation of ambiguous policy language. Accordingly, the Third Circuit rejected AHS’ argument that the District Court improperly considered AHS’s and National Union’s prior and subsequent course of performance as evidence that AHS understood how to properly submit claims to National Union.

This decision confirms that it is essential for any insured to submit an insurance claim in strict compliance with the letter of the policy’s notice and reporting provisions in order to secure coverage under the applicable policy for any claim submitted, or risk having the claim rejected and retaining liability for any defense costs and indemnity payments.