Texas Takes the Lead on Notice Disputes Under Claims-Made Liability Policies

A common requirement in both occurrence and claims-made liability insurance policies is that policyholders provide “timely notice” of an accident, occurrence, claim or lawsuit ' often “as soon as practicable.” Although specific notice provisions vary among different liability policies, the purported purpose of these notice requirements is to enable insurance companies to investigate and respond to claims. See Ostrager & Newman, Handbook on Insurance Coverage Disputes, Vol. 1, ' 4.01[a] at 135 (14th ed. 2008).

In some jurisdictions, insurance companies used to be able to successfully deny coverage based on a policyholder's failure to comply strictly with notice provisions, even if the carrier could not demonstrate any prejudice by virtue of the delay. See, e.g., Argo Corp. v. Greater N.Y. Mut. Ins. Co., 827 N.E.2d 762, 765 (N.Y. 2005); Great Canal Realty Corp. v. Seneca Insurance Co., Inc., 833 N.E.2d 1196 (N.Y. 2005); Unigard Sec. Ins. Co. v. N. River Ins. Co., 594 N.E.2d 571, 573 (N.Y. 1992); Sec. Mut. Ins. Co. v. Acker-Fitzsimmons Corp., 293 N.E.2d 76 (N.Y. 1972); Travelers Indem. Co. of Illinois v. United Food and Commercial Workers Int'l Union, 770 A.2d 978, 991 (D.C. 2001); Viani v. Aetna Ins. Co., 501 P.2d 706 (Idaho 1972), overruled in part on other grounds, Sloviaczek v. Estate of Puckett, 565 P.2d 564 (Idaho 1977); Country Mutual Ins. Co. v. Livorsi Marine, Inc., 856 N.E.2d 338, 346 (Ill. 2006); State Farm Mut. Auto Ins. Co. v. Cassinelli, 216 P.2d 606 (Nev. 1950). Over the years, however, courts in many jurisdictions followed the trend of relaxing those rules requiring strict compliance with notice provisions and instead applied a “prejudice” standard, particularly in disputes involving occurrence-based liability policies.

Historically, few courts have addressed the issue in a claims-made liability policy context. Recently, however, in a pair of simultaneously issued decisions, the Texas Supreme Court literally took the notice “bull by the horns” and issued two groundbreaking decisions. As a result, under Texas law, an insurer must now show prejudice to deny payment on a claims-made policy, or a claims-made and reported policy, when the carrier's denial is based upon the insured's alleged breach of a policy's prompt-notice provision and notice is provided within the policy's coverage period (or any contracted-for extended reporting period). Financial Industries Corp. v. XL Specialty Ins. Co., No. 07-1059, __ S.W. 3d __ (Tex. March 27, 2009); Prodigy Communications Corp. v. Agricultural Excess & Surplus Ins. Co., No. 06-0598, __ S.W.3d __ (Tex. March 27, 2009). These companion decisions by the Texas Supreme Court not only represent a major victory for policyholders with claims-made or claims-made and reported policies, but also provide persuasive authority for courts in other jurisdictions to expand to claims-made, and claims-made and reported liability policies the more liberal majority prejudice approach applied to notice provisions in occurrence-based policies.

Notice Requirements Vary

Liability coverage usually may be purchased either on an “occurrence” or “claims-made” basis. The reporting requirements between the two coverage forms vary, and courts have drawn a distinction between the two policy forms when determining whether to impose a more reasonable or rigid notice compliance standard. See, e.g., Central Illinois Light Co. v. Home Insurance Co., 821 N.E.2d. 206 (Ill. 2004) (occurrence-based policies indemnify against claims occurring in a certain time period, regardless of when claims are made, while claims-made policies indemnify against claims made during a certain period, regardless of when the underlying incidents occurred); Zuckerman v. National Union Fire Insurance Company, 100 N.J. 304, 324 (1985).

Occurrence Policies

Many commercial general liability policies are written on “occurrence” policy forms, and provide coverage for “occurrences” that take place during the policy period, regardless of when the claims are actually made against the policyholder. Under an occurrence-based insurance contract, the policy in force on the date of the event causing the covered loss, or the date of the alleged damage, may be called upon to respond; therefore, actual claims may arise years after the policy's expiration date.

Occurrence-based liability policies often require that notice of a claim be made “as soon as practicable” after the claim or injury-causing event. For instance, a notice provision in an occurrence-based commercial general liability policy may provide:

In the event of an occurrence, written notice containing particulars sufficient to identify the insured and all reasonably obtainable information with respect to the time, place and circumstances thereof, and the names and addresses of the injured and of available witnesses, shall be given by or for the insured to the company or any of its authorized agents as soon as practicable.

See Ostrager & Newman, Handbook on Insurance Coverage Disputes, Vol. 1, ' 4.01[b][1] at 135 (14th ed. 2008) (emphasis added). In some jurisdictions, the phrase “as soon as practicable” has been construed to mean “within a reasonable time,” which “depends on the facts and circumstances of the particular case; the question of compliance with this type of provision is ordinarily a factual issue for resolution by the jury unless the facts are undisputed and different inferences cannot reasonably be drawn therefrom.” Bass v. Allstate Ins. Co., 77 N.J. Super. 491, 495 (App. Div. 1962); see also Country Mutual Insurance Company v. Livorsi Marine, Inc., 856 N.E.2d 338, 343 (Ill. 2006); Mount Vernon Fire Ins. Co. v. King Gen. Constr., 1998 U.S. App. LEXIS 20574 (2d Cir. 1998) (quoting Olin Corp. v. Insurance Co. of N. Am., 966 F.2d 718, 723 (2d Cir. 1992)); Figueroa v. Puter, 84 N.J. Super. 349, 354 (App. Div. 1964).

Some jurisdictions place the burden on the insured to prove that its late notice did not prejudice the carrier to defeat the insurer's late notice defense. See, e.g., Grinnell Mut. Reinsurance Co. v. Jungling, 654 N.W.2d 530, 541-42 (Iowa 2002); Ferrando v. Auto-Owners Mut. Ins. Co., 781 N.E.2d 927 (Ohio 2002). In these jurisdictions, prejudice to the insurer is presumed unless the insured can show “substantial compliance [with the notice provisions], excuse, waiver, or lack of prejudice to the insurer.” Grinnell, 654 N.W.2d at 542 (citing Henderson v. Hawkeye-Security Ins. Co., 106 N.W.2d 86, 92 (1960)).

In contrast, some courts have held that with respect to occurrence-based policies, an insurance company may not decline coverage “unless there are both a breach of the notice provision and a likelihood of appreciable prejudice. The burden of persuasion is the carrier's.” Cooper v. Government Employees Ins. Co., 51 N.J. 86, 94-95 (1968); see also Resolution Trust Corp. v. Moskowitz, 868 F. Supp. 634, 638 (D.N.J. 1994) (New Jersey law). New Jersey courts, for example, generally consider two factors in resolving whether sufficient “appreciable prejudice” exists to avoid coverage:

The first pertains to whether substantial rights have been irretrievably lost by virtue of failure of the insured to notify the carrier in a timely fashion. In this regard it is to be emphasized that the carrier must establish more than the mere fact that it cannot employ its normal procedures in investigating and evaluating the claim '

The second factor considered by most courts in determining whether appreciable prejudice exists pertains to the likelihood of success of the insurer in defending against the accident victim's claim.

Morales v. National Grange Mut. Ins. Co., 176 N.J. Super. 347, 355-56 (Law Div. 1980). The lapse of time, by itself, generally “is not determinative” (Bass, 77 N.J. Super. at 495), and often delays in notification create fact questions about prejudice. See, e.g., Hatco Corp. v. W.R. Grace & Co., 801 F. Supp. 1334, 1372-73 (D.N.J. 1992) (finding that, under New Jersey law, a six-year delay in notification created a fact question about prejudice), vacated on other grounds, Hatco Corp. v. W.R. Grace & Co., 59 F.3d 400 (3d Cir. 1995).

The “appreciable prejudice” rule has been recognized by other courts throughout the country. See, e.g., PAJ, Inc. v. The Hanover Insurance Co., 243 S.W.3d 630, 636-37 (Tex. 2008); Friedland v. Travelers Indemnity Co., 105 P.3d 639, 643 (Colo. 2005); Mefferd v. Seiler and Co., 676 N.W.2d 22, 26 (Neb. 2004); Cooperative Fire Ins. Ass'n of Vt. v. White Caps, Inc., 694 A.2d 34 (Vt. 2000); Johnson Controls, Inc. v. Bowes, 409 N.E.2d 185, 188 (Mass. 1980); Falcon Steel Co. v. Maryland Cas. Co., 366 A.2d 512, 518 (Del. Super. Ct. 1976). For instance, the Pennsylvania Supreme Court held:

[A]lthough the policy may speak of the notice provision in terms of 'condition precedent,' ' nonetheless what is involved is a forfeiture, for the carrier seeks, on account of a breach of that provision, to deny the insured the very thing it paid for. This is not to belittle the need for notice of an accident, but rather to put the subject in perspective. Thus viewed, it becomes unreasonable to read the provision unrealistically or to find that the carrier may forfeit the coverage, even though there is no likelihood that it was prejudiced by the breach.

'

In short, the function of a notice requirement is to protect the insurance company's interest from being prejudiced. Where the insurance company's interests have not been harmed by a late notice, even in the absence of extenuating circumstances to excuse the tardiness, the reason behind the notice condition in the policy is lacking, and it follows neither logic nor fairness to relieve the insurance company of its obligations under the policy in such a situation.

Brakeman v. Potomac Insurance Co., 371 A.2d 193, 197 (Pa. 1977) (quoting Cooper v. Government Employees Ins. Co., 51 N.J. 86, 93-94 (1968)); see also Trustees of Univ. of Pa. v. Lexington Ins. Co., 815 F.2d 890, 896-98 (3d Cir. 1987) (holding the Brakeman prejudice rule applied even where a relatively sophisticated insured failed to provide timely notice).

Notably, until recently, New York did not require liability carriers to establish any prejudice to deny coverage based on a policyholder's late notice. See, e.g., American Home Assur. Co. v. Republic Ins. Co., 984 F.2d 76, 77-78 (2d Cir. 1993); Argo Corp. v. Greater New York Mutual Insurance Co., N.E.2d 762, (N.Y. 2005) (holding that 14-month delay in providing notice was unreasonable as a matter of law); Great Canal Realty Corp. v. Seneca Insurance Co., Inc., 833 N.E.2d 1196 (N.Y. 2005) (noting that “the carrier need not show prejudice before disclaiming based on the insured's failure to timely notify it of an occurrence”). However, New York Insurance Law ' 3420(a)(5) ' which was signed into law on July 21, 2008 ' now provides that “failure to give any notice required to be given by such [liability insurance] policy within the time prescribed therein shall not invalidate any claim made by the insured, injured person or any other claimant, unless the failure to provide timely notice has prejudiced the insurer.” N.Y. Ins. Law ' 3420(a)(5). Under ' 3420(c)(2)(C), an insurance company must now show “material prejudice,” which is defined as that which “materially impairs the ability of the insurer to investigate or defend the claim.” N.Y. Ins. Law ' 3420(c)(2)(C). The new law does not purport to extend to claims-made policies. N.Y. Ins. Law ' 3420(a)(5) (“With respect to a claims-made policy, however, the policy may provide that the claim shall be made during the policy period, any renewal thereof, or any extended reporting period”). Further, the law only applies to affected insurance policies “issued or delivered in [New York] on or after” Jan. 17, 2009. Id. ' 8 (providing that “[t]his act shall take effect on the one hundred eightieth day after it shall have become a law [Governor Patterson signed the bill on July 21, 2008], and shall apply to policies issued or delivered in this state on or after such date and to any action maintained under such a policy.”).

In some states, however, the more restrictive rules may still apply with respect to late notice in occurrence-based policies. See Travelers Indem. Co. of Illinois v. United Food and Commercial Workers Int'l Union, 770 A.2d 978, 991 (D.C. 2001); Viani v. Aetna Ins. Co., 501 P.2d 706 (Idaho 1972), overruled in part on other grounds, Sloviaczek v. Estate of Puckett, 565 P.2d 564 (Idaho 1977); Country Mutual Ins. Co. v. Livorsi Marine, Inc., 856 N.E.2d 338, 346 (Ill. 2006); State Farm Mut. Auto Ins. Co. v. Cassinelli, 216 P.2d 606 (Nev. 1950). The Illinois Supreme Court, for example, recently held that under an occurrence-based policy, “once it is determined that the insurer did not receive reasonable notice of an occurrence or a lawsuit, the policyholder may not recover under the policy, regardless of whether the lack of reasonable notice prejudiced the insurer.” Livorsi Marine, 856 N.E.2d at 346.

Claims-Made Policies

Many liability policies and virtually all professional liability policies, such as directors' and officers' liability coverage, are now written on a “claims-made” basis. “Claims-made” liability policies provide coverage for third-party injury or damage only if the claim is made against the policyholder during the policy period. Under claims-made policies, the date of the occurrence that gave rise to the claim is typically irrelevant for notice (and often coverage) purposes. See Central Illinois Light Co. v. Home Insurance Co., 821 N.E.2d. 206 (Ill. 2004) (claims-made policies indemnify against claims made during a certain period, regardless of when underlying incidents occurred). Coverage is determined by the date the policyholder first becomes aware of a claim (or sometimes a potential claim) against it. Generally speaking, those insurance carriers that have claims-made policies in force on the date the policyholder receives a third-party claim (i.e., the date the claim is “made”) must provide coverage ' assuming all other conditions are met and no policy exclusions apply. The conditions in certain claims-made policies, however, often also include notice to the carrier “as soon as practicable.”

Other claims-made policy forms likewise require that notice to the carrier be provided “within the policy period,” within some finite measurable time frame (i.e., “within 90 days”), or during any extended reporting period (or “discovery period”) after expiration of the claims-made policy: These claims-made forms are sometimes more precisely referred to as “claims-made and reported” policies. See Ostrager & Newman, Handbook on Insurance Coverage Disputes, Vol. 1, ' 4.02[b][4] at 144 (14th ed. 2008). Some courts have observed that the notice requirement in a claims-made and reported policy “allow[s] the insurer to 'close its books' on a policy at its expiration and thus to 'attain a level of predictability unattainable under standard occurrence policies.'” Federal Deposit Ins. Corp. v. Mijalis, 15 F.3d 1314, 1330 (5th Cir. 1994).

Historically, the “appreciable prejudice” analysis has not been applied to claims-made forms ' often because courts generally distinguished claims under policies in which the claim was not required to be made and/or reported during the policy period, rather than in the context of satisfying the “as soon as practicable” requirement. For example, in Zuckerman v. National Union Fire Insurance Company, 100 N.J. 304 (1985), the New Jersey Supreme Court found that:

[A]n extension of the notice period in a claims made policy constitutes an unbargained for expansion of coverage, gratis, resulting in the insurance company's exposure to a risk substantially broader than that expressly insured against. [The appreciable prejudice doctrine] has, however, no application whatsoever to a 'claims made' policy that fulfills the reasonable expectations of the insured with respect to the scope of coverage.

Id. at 324. The court mistakenly described the policy in Zuckerman as only a “claims-made” policy. However, the notice provision stated “a claim is first made during the policy period if during the policy ' the insured shall have knowledge or become aware of any act or omission which could reasonably be expected to give rise to a claim ' and shall during the policy or extended reporting period give written notice thereof to the Company.” 100 N.J. at 308 (emphasis added). This language suggests that the policy is actually more precisely described as a “claims made and reported” contract, which covers only claims made against the insured and reported to the carrier during the policy period. See Gazis v. Miller, 186 N.J. 224, 229 (2006) (noting that the policy in Zuckerman was limited to claims made and reported during the policy period). See also Miller v. The National Catholic Risk Retention Group, Inc., 378 N.J. Super. 59, 64 (App. Div. 2005) (applying the Cooper appreciable prejudice doctrine in an auto accident case to an occurrence policy, but also stating “the Supreme Court has declined to extend the Cooper “appreciable prejudice” doctrine to claims made policies”); Central Illinois Light Co. v. Home Insurance Co., 821 N.E.2d. 206 (Ill. 2004); Gulf v. Dolan, Fertig & Curtis, 433 So. 2d 512, 515 (Fla. 1983).

Because the reporting requirement is sometimes considered to be one of the essential terms of many claims-made policies, courts have found that failure to provide timely notice is less excusable under these policies than under occurrence-based policies. See, e.g., City of Harrisburg v. International Surplus Lines Ins. Co., 596 F. Supp. 954, 960-62 (M.D. Pa. 1984), aff'd 770 F.2d 1067 (3d Cir. 1985) (notice provision in claims-made and reported policy serves different purpose in occurrence policy); Zuckerman, 100 N.J. at 322-24. Thus, those courts have found coverage is unavailable to policyholders that fail to strictly comply with notice requirements in claims-made and claims-made and reported policies.

Insurers Must Demonstrate Prejudice to Deny Coverage Based on Late Notice

In Financial Industries Corp. v. XL Specialty Ins. Co., XL Specialty Insurance Company (“XL”) issued a claims-made management liability policy to Financial Industries Corporation (“FIC”). As a “condition precedent to any right to payment,” the policy required FIC to notify XL of any claim “as soon as practicable after it is first made.” Contrary to the policy at issue in Prodigy Communications, discussed infra, it appears the policy at issue in Financial Industries only required that the claim be made against the insured within the policy period ' it was not a “claims-made and reported” policy. Seven months after being sued for breach of contract and fraud (and within the policy period), FIC submitted a claim under its management liability policy. XL, however, denied FIC's claim under the policy's prompt notice provision and sought a declaratory judgment in federal court that FIC was not entitled to coverage.

The district court concluded that FIC's failure to provide prompt notice to the insurer of the claim constituted a breach of the policy. XL Specialty Ins. Co. v. Financial Indus. Corp., 2007 WL 4461190, *1 (5th Cir. 2007). The court declared that the insurer had no obligation to indemnify FIC for any fees or costs associated with the underlying claim. Thereafter, FIC appealed to the Fifth Circuit Court of Appeals.

The Circuit Court certified the following question to the Texas Supreme Court: “Must an insurer show prejudice to deny payment on a claims-made policy, when the denial is based on the insured's breach of the policy's prompt notice provision, but the notice is nevertheless given within the policy's coverage period?” Id. at *2. The parties stipulated to two key facts: 1) FIC did not notify XL “as soon as practicable” as required by the policy, and 2) FIC's failure to give notice as soon as practicable did not result in any “prejudice” to XL. Thus, the coverage determination in the case was entirely dependent on whether prejudice was required to decline coverage based on late notice under a claims-made policy form.

In its brief to the Texas Supreme Court, FIC relied on PAJ, Inc. v. The Hanover Insurance Co., 243 S.W.3d 630 (Tex. 2008), a 2008 decision by that court that held that prejudice is required to decline coverage based on late notice for occurrence-based policies. FIC argued that even if notice is deemed late, prejudice should be required where notice was provided within the policy period for a claims-made policy.

XL distinguished the PAJ decision on two grounds. First, the general liability policy at issue in PAJ was subject to a Texas Board of Insurance order that mandated the inclusion of a policy endorsement that required prejudice for late notice “as respects bodily injury liability coverage and property damage liability coverage.” Appellate Brief of XL Specialty Ins. at 5. Specifically, XL argued that FIC's claims-made management liability policy was not subject to the same Texas Board of Insurance mandate. Second, XL argued that the PAJ court focused on the fact that the policy at issue was an occurrence-based policy, not the type of claims-made coverage at issue. XL emphasized that Texas, as well as other jurisdictions, have considered critical the distinction between claims-made and occurrence policies when it comes to requiring prejudice to prevail on a late-notice defense.

On March 27, 2009, the Texas Supreme Court answered the certified question “in the affirmative” and held that “an insurer must show prejudice to deny payment on a claims-made policy, when the denial is based upon the insured's breach of the policy's prompt-notice provision, but the notice is given within the policy's coverage period.” Financial Industries Corp. v. XL Specialty Ins. Co., No. 07-1059, __ S.W.3d __ (Tex. March 27, 2009). Thus, if the insurer cannot demonstrate that it was prejudiced, the policyholder does not lose coverage under its claims-made policy by giving late notice of a claim, provided that its notice is still within the policy period. The court reasoned that “FIC gave notice within the policy's scope of coverage, i.e., before XL could 'close its books' on the policy,” and thus, XL was not “denied the benefit of the claims-made nature of its policy.” Id. at 3.

On the same day, the Texas Supreme Court also announced its decision in a substantially similar case, Prodigy Communications Corp. v. Agricultural Excess & Surplus Ins. Co., No. 06-0598, __ S.W.3d __ (Tex. March 27, 2009). The policy in Prodigy Communications contained a notice provision that required the insured, “as a condition precedent” to its rights under the policy, to provide notice to the insurer “as soon as practicable ' but in no event later than ninety (90) days after the expiration of the Policy Period or Discovery Period.” The policy period under this claims-made and reported policy form was March 16, 2000 to May 31, 2000, but for an additional premium, the insured purchased a three-year “Discovery Period,” which extended coverage under the policy to any claims first made between May 31, 2000 and May 31, 2003. Thus, after exercising the extension and under the above-referenced notice provision, the insured likewise was required to report any claims “as soon as practicable,” but no later than 90 days after May 21, 2003. Like the Zuckerman court, the Prodigy Communications court repeatedly and imprecisely referred to the policy generally as a “claims-made” policy; however, given the requirement that claims be reported “in no event later than ninety (90) days after the expiration of the Policy Period or Discovery Period,” the policy language suggests that it is more precisely referred to as a claims-made and reported insurance contract.

On June 20, 2002, the insured was served with a complaint in which it was named as a defendant in a class-action securities lawsuit. Over a year later, on June 26, 2003 (within 90 days of the end of the extension period), the insured provided its carrier with formal written notice of the lawsuit.

Although the lower and intermediate appellate courts held that coverage was barred because the insured did not satisfy the policy's condition precedent that notice of a claim be provided “as soon as practicable,” the Texas Supreme Court reversed the lower courts' holdings. The court observed that “a notice provision requiring that a claim be reported to the insurer during the policy period or within a specific number of days thereafter 'define[s] the scope of coverage by providing a certain date after which an insurer knows it is no longer liable under the policy.'” Id. at 7 (quoting Resolution Trust Corp. v. Ayo, 31 F.3d 285, 289 (5th Cir. 1994)). The court noted that the insured gave notice of the class action lawsuit “before the ninety-day cutoff” provided in the policy, and therefore the insurer “was not denied the benefit of the claims-made nature of its policy as it could not 'close its books' on the policy until ninety days after the discovery period expired.” Id. at 8 (citing F.D.I.C. v. Majilis, 15 F.3d 1314, 1330 (5th Cir. 1994)).

Accordingly, the Prodigy Communications court held that “in a claims-made policy, when an insured notifies its insurer of a claim within the policy term or other reporting period that the policy specifies, the insured's failure to provide notice 'as soon as practicable' will not defeat coverage in the absence of prejudice to the insurer.” Id. at 9. The court reasoned that the provision requiring “notice 'as soon as practicable' was not an essential part of the bargained-for exchange under the claims-made policy at issue here” and that, under the fundamental principles of contract law, an affirmative showing of prejudice by the insurance company was therefore required. Id. at 2.

Conclusion

The Texas Supreme Court's holdings could be followed by other courts nationwide that grapple with notice disputes under claims-made, or claims-made and reported policies that require notice “as soon as practicable” after the underlying claim or injury-causing event. Indeed, these decisions underscore the rationale for protecting a policyholder that provides notice during the claims-made, or claims-made and reported period, even if such notice is not immediate or otherwise “as soon as practicable.” As long as a policyholder notifies its claims-made insurer within the policy period or extended reporting period, the insurer may still “close its book” at the end of the contracted-for policy period, which is purportedly one of the primary goals of a claims-made carrier that underwrites such liability. See, e.g., Federal Deposit Ins. Corp. v. Mijalis, 15 F.3d 1314, 1330 (5th Cir. 1994). Indeed, the equitable and practical concerns raised by courts considering whether to apply the “prejudice” standard to claims-made, or claims-made and reported policies, are not present when a policyholder provides notice within the policy period. See, e.g., Zuckerman v. National Union Fire Insurance Company, 100 N.J. 304 (1985); Miller v. The National Catholic Risk Retention Group, Inc., 378 N.J. Super. 59, 64 (App. Div. 2005) (stating that “the Supreme Court has declined to extend the Cooper “appreciable prejudice” doctrine to claims made policies”). As the Texas Supreme Court found, there is no unbargained-for or inequitable expansion of coverage in those circumstances, and, consistent with the majority of courts addressing notice provisions in occurrence-based policies, these insurers likewise should bear the burden of demonstrating prejudice by virtue of a claims-made policyholder's alleged breach of the prompt notice provisions.

Gregory H. Horowitz is a partner in the Insurance Coverage and Litigation Group of McCarter & English, LLP. He handles a variety of domestic and international coverage, and insurance broker, disputes and is based in the firm's Newark, NJ office. Mark D. Villanueva is an Insurance Coverage and Litigation Group associate in the firm's Philadelphia office and also specializes in complex coverage disputes. The opinions expressed in this article are those of the authors and not necessarily of McCarter & English or its clients.

A common requirement in both occurrence and claims-made liability insurance policies is that policyholders provide “timely notice” of an accident, occurrence, claim or lawsuit ' often “as soon as practicable.” Although specific notice provisions vary among different liability policies, the purported purpose of these notice requirements is to enable insurance companies to investigate and respond to claims. See Ostrager & Newman, Handbook on Insurance Coverage Disputes, Vol. 1, ' 4.01[a] at 135 (14th ed. 2008).

In some jurisdictions, insurance companies used to be able to successfully deny coverage based on a policyholder's failure to comply strictly with notice provisions, even if the carrier could not demonstrate any prejudice by virtue of the delay. See, e.g., Argo Corp. v. Greater N.Y. Mut. Ins. Co., 827 N.E.2d 762, 765 (N.Y. 2005); Great Canal Realty Corp. v. Seneca Insurance Co., Inc., 833 N.E.2d 1196 (N.Y. 2005); Unigard Sec. Ins. Co. v. N. River Ins. Co., 594 N.E.2d 571, 573 (N.Y. 1992); Sec. Mut. Ins. Co. v. Acker-Fitzsimmons Corp., 293 N.E.2d 76 (N.Y. 1972); Travelers Indem. Co. of Illinois v. United Food and Commercial Workers Int'l Union, 770 A.2d 978, 991 (D.C. 2001); Viani v. Aetna Ins. Co., 501 P.2d 706 (Idaho 1972), overruled in part on other grounds , Sloviaczek v. Estate of Puckett, 565 P.2d 564 (Idaho 1977); Country Mutual Ins. Co. v. Livorsi Marine, Inc., 856 N.E.2d 338, 346 (Ill. 2006); State Farm Mut. Auto Ins. Co. v. Cassinelli, 216 P.2d 606 (Nev. 1950). Over the years, however, courts in many jurisdictions followed the trend of relaxing those rules requiring strict compliance with notice provisions and instead applied a “prejudice” standard, particularly in disputes involving occurrence-based liability policies.

Historically, few courts have addressed the issue in a claims-made liability policy context. Recently, however, in a pair of simultaneously issued decisions, the Texas Supreme Court literally took the notice “bull by the horns” and issued two groundbreaking decisions. As a result, under Texas law, an insurer must now show prejudice to deny payment on a claims-made policy, or a claims-made and reported policy, when the carrier's denial is based upon the insured's alleged breach of a policy's prompt-notice provision and notice is provided within the policy's coverage period (or any contracted-for extended reporting period). Financial Industries Corp. v. XL Specialty Ins. Co., No. 07-1059, __ S.W. 3d __ (Tex. March 27, 2009); Prodigy Communications Corp. v. Agricultural Excess & Surplus Ins. Co., No. 06-0598, __ S.W.3d __ (Tex. March 27, 2009). These companion decisions by the Texas Supreme Court not only represent a major victory for policyholders with claims-made or claims-made and reported policies, but also provide persuasive authority for courts in other jurisdictions to expand to claims-made, and claims-made and reported liability policies the more liberal majority prejudice approach applied to notice provisions in occurrence-based policies.

Notice Requirements Vary

Liability coverage usually may be purchased either on an “occurrence” or “claims-made” basis. The reporting requirements between the two coverage forms vary, and courts have drawn a distinction between the two policy forms when determining whether to impose a more reasonable or rigid notice compliance standard. See, e.g., Central Illinois Light Co. v. Home Insurance Co., 821 N.E.2d. 206 (Ill. 2004) (occurrence-based policies indemnify against claims occurring in a certain time period, regardless of when claims are made, while claims-made policies indemnify against claims made during a certain period, regardless of when the underlying incidents occurred); Zuckerman v. National Union Fire Insurance Company, 100 N.J. 304, 324 (1985).

Occurrence Policies

Many commercial general liability policies are written on “occurrence” policy forms, and provide coverage for “occurrences” that take place during the policy period, regardless of when the claims are actually made against the policyholder. Under an occurrence-based insurance contract, the policy in force on the date of the event causing the covered loss, or the date of the alleged damage, may be called upon to respond; therefore, actual claims may arise years after the policy's expiration date.

Occurrence-based liability policies often require that notice of a claim be made “as soon as practicable” after the claim or injury-causing event. For instance, a notice provision in an occurrence-based commercial general liability policy may provide:

In the event of an occurrence, written notice containing particulars sufficient to identify the insured and all reasonably obtainable information with respect to the time, place and circumstances thereof, and the names and addresses of the injured and of available witnesses, shall be given by or for the insured to the company or any of its authorized agents as soon as practicable.

See Ostrager & Newman, Handbook on Insurance Coverage Disputes, Vol. 1, ' 4.01[b][1] at 135 (14th ed. 2008) (emphasis added). In some jurisdictions, the phrase “as soon as practicable” has been construed to mean “within a reasonable time,” which “depends on the facts and circumstances of the particular case; the question of compliance with this type of provision is ordinarily a factual issue for resolution by the jury unless the facts are undisputed and different inferences cannot reasonably be drawn therefrom.” Bass v. Allstate Ins. Co. , 77 N.J. Super. 491, 495 (App. Div. 1962); see also Country Mutual Insurance Company v. Livorsi Marine, Inc. , 856 N.E.2d 338, 343 (Ill. 2006); Mount Vernon Fire Ins. Co. v. King Gen. Constr., 1998 U.S. App. LEXIS 20574 (2d Cir. 1998) (quoting Olin Corp. v. Insurance Co. of N. Am., 966 F.2d 718, 723 (2d Cir. 1992)); Figueroa v. Puter , 84 N.J. Super. 349, 354 (App. Div. 1964).

Some jurisdictions place the burden on the insured to prove that its late notice did not prejudice the carrier to defeat the insurer's late notice defense. See, e.g., Grinnell Mut. Reinsurance Co. v. Jungling, 654 N.W.2d 530, 541-42 (Iowa 2002); Ferrando v. Auto-Owners Mut. Ins. Co., 781 N.E.2d 927 (Ohio 2002). In these jurisdictions, prejudice to the insurer is presumed unless the insured can show “substantial compliance [with the notice provisions], excuse, waiver, or lack of prejudice to the insurer.” Grinnell, 654 N.W.2d at 542 (citing Henderson v. Hawkeye-Security Ins. Co., 106 N.W.2d 86, 92 (1960)).

In contrast, some courts have held that with respect to occurrence-based policies, an insurance company may not decline coverage “unless there are both a breach of the notice provision and a likelihood of appreciable prejudice. The burden of persuasion is the carrier's.” Cooper v. Government Employees Ins. Co., 51 N.J. 86, 94-95 (1968); see also Resolution Trust Corp. v. Moskowitz, 868 F. Supp. 634, 638 (D.N.J. 1994) (New Jersey law). New Jersey courts, for example, generally consider two factors in resolving whether sufficient “appreciable prejudice” exists to avoid coverage:

The first pertains to whether substantial rights have been irretrievably lost by virtue of failure of the insured to notify the carrier in a timely fashion. In this regard it is to be emphasized that the carrier must establish more than the mere fact that it cannot employ its normal procedures in investigating and evaluating the claim '

The second factor considered by most courts in determining whether appreciable prejudice exists pertains to the likelihood of success of the insurer in defending against the accident victim's claim.

Morales v. National Grange Mut. Ins. Co., 176 N.J. Super. 347, 355-56 (Law Div. 1980). The lapse of time, by itself, generally “is not determinative” (Bass, 77 N.J. Super. at 495), and often delays in notification create fact questions about prejudice. See, e.g., Hatco Corp. v. W.R. Grace & Co., 801 F. Supp. 1334, 1372-73 (D.N.J. 1992) (finding that, under New Jersey law, a six-year delay in notification created a fact question about prejudice), vacated on other grounds, Hatco Corp. v. W.R. Grace & Co., 59 F.3d 400 (3d Cir. 1995).

The “appreciable prejudice” rule has been recognized by other courts throughout the country. See, e.g., PAJ, Inc. v. The Hanover Insurance Co., 243 S.W.3d 630, 636-37 (Tex. 2008); Friedland v. Travelers Indemnity Co., 105 P.3d 639, 643 (Colo. 2005); Mefferd v. Seiler and Co., 676 N.W.2d 22, 26 (Neb. 2004); Cooperative Fire Ins. Ass'n of Vt. v. White Caps, Inc. , 694 A.2d 34 (Vt. 2000); Johnson Controls, Inc. v. Bowes, 409 N.E.2d 185, 188 (Mass. 1980); Falcon Steel Co. v. Maryland Cas. Co., 366 A.2d 512, 518 (Del. Super. Ct. 1976). For instance, the Pennsylvania Supreme Court held:

[A]lthough the policy may speak of the notice provision in terms of 'condition precedent,' ' nonetheless what is involved is a forfeiture, for the carrier seeks, on account of a breach of that provision, to deny the insured the very thing it paid for. This is not to belittle the need for notice of an accident, but rather to put the subject in perspective. Thus viewed, it becomes unreasonable to read the provision unrealistically or to find that the carrier may forfeit the coverage, even though there is no likelihood that it was prejudiced by the breach.

'

In short, the function of a notice requirement is to protect the insurance company's interest from being prejudiced. Where the insurance company's interests have not been harmed by a late notice, even in the absence of extenuating circumstances to excuse the tardiness, the reason behind the notice condition in the policy is lacking, and it follows neither logic nor fairness to relieve the insurance company of its obligations under the policy in such a situation.

Brakeman v. Potomac Insurance Co. , 371 A.2d 193, 197 (Pa. 1977) (quoting Cooper v. Government Employees Ins. Co. , 51 N.J. 86, 93-94 (1968)); see also Trustees of Univ. of Pa. v. Lexington Ins. Co. , 815 F.2d 890, 896-98 (3d Cir. 1987) (holding the Brakeman prejudice rule applied even where a relatively sophisticated insured failed to provide timely notice).

Notably, until recently, New York did not require liability carriers to establish any prejudice to deny coverage based on a policyholder's late notice. See, e.g., American Home Assur. Co. v. Republic Ins. Co., 984 F.2d 76, 77-78 (2d Cir. 1993); Argo Corp. v. Greater New York Mutual Insurance Co., N.E.2d 762, (N.Y. 2005) (holding that 14-month delay in providing notice was unreasonable as a matter of law); Great Canal Realty Corp. v. Seneca Insurance Co., Inc. , 833 N.E.2d 1196 (N.Y. 2005) (noting that “the carrier need not show prejudice before disclaiming based on the insured's failure to timely notify it of an occurrence”). However, New York Insurance Law ' 3420(a)(5) ' which was signed into law on July 21, 2008 ' now provides that “failure to give any notice required to be given by such [liability insurance] policy within the time prescribed therein shall not invalidate any claim made by the insured, injured person or any other claimant, unless the failure to provide timely notice has prejudiced the insurer.” N.Y. Ins. Law ' 3420(a)(5). Under ' 3420(c)(2)(C), an insurance company must now show “material prejudice,” which is defined as that which “materially impairs the ability of the insurer to investigate or defend the claim.” N.Y. Ins. Law ' 3420(c)(2)(C). The new law does not purport to extend to claims-made policies. N.Y. Ins. Law ' 3420(a)(5) (“With respect to a claims-made policy, however, the policy may provide that the claim shall be made during the policy period, any renewal thereof, or any extended reporting period”). Further, the law only applies to affected insurance policies “issued or delivered in [New York] on or after” Jan. 17, 2009. Id. ' 8 (providing that “[t]his act shall take effect on the one hundred eightieth day after it shall have become a law [Governor Patterson signed the bill on July 21, 2008], and shall apply to policies issued or delivered in this state on or after such date and to any action maintained under such a policy.”).

In some states, however, the more restrictive rules may still apply with respect to late notice in occurrence-based policies. See Travelers Indem. Co. of Illinois v. United Food and Commercial Workers Int'l Union, 770 A.2d 978, 991 (D.C. 2001); Viani v. Aetna Ins. Co. , 501 P.2d 706 (Idaho 1972), overruled in part on other grounds , Sloviaczek v. Estate of Puckett , 565 P.2d 564 (Idaho 1977); Country Mutual Ins. Co. v. Livorsi Marine, Inc. , 856 N.E.2d 338, 346 (Ill. 2006); State Farm Mut. Auto Ins. Co. v. Cassinelli , 216 P.2d 606 (Nev. 1950). The Illinois Supreme Court, for example, recently held that under an occurrence-based policy, “once it is determined that the insurer did not receive reasonable notice of an occurrence or a lawsuit, the policyholder may not recover under the policy, regardless of whether the lack of reasonable notice prejudiced the insurer.” Livorsi Marine, 856 N.E.2d at 346.

Claims-Made Policies

Many liability policies and virtually all professional liability policies, such as directors' and officers' liability coverage, are now written on a “claims-made” basis. “Claims-made” liability policies provide coverage for third-party injury or damage only if the claim is made against the policyholder during the policy period. Under claims-made policies, the date of the occurrence that gave rise to the claim is typically irrelevant for notice (and often coverage) purposes. See Central Illinois Light Co. v. Home Insurance Co. , 821 N.E.2d. 206 (Ill. 2004) (claims-made policies indemnify against claims made during a certain period, regardless of when underlying incidents occurred). Coverage is determined by the date the policyholder first becomes aware of a claim (or sometimes a potential claim) against it. Generally speaking, those insurance carriers that have claims-made policies in force on the date the policyholder receives a third-party claim (i.e., the date the claim is “made”) must provide coverage ' assuming all other conditions are met and no policy exclusions apply. The conditions in certain claims-made policies, however, often also include notice to the carrier “as soon as practicable.”

Other claims-made policy forms likewise require that notice to the carrier be provided “within the policy period,” within some finite measurable time frame (i.e., “within 90 days”), or during any extended reporting period (or “discovery period”) after expiration of the claims-made policy: These claims-made forms are sometimes more precisely referred to as “claims-made and reported” policies. See Ostrager & Newman, Handbook on Insurance Coverage Disputes, Vol. 1, ' 4.02[b][4] at 144 (14th ed. 2008). Some courts have observed that the notice requirement in a claims-made and reported policy “allow[s] the insurer to 'close its books' on a policy at its expiration and thus to 'attain a level of predictability unattainable under standard occurrence policies.'” Federal Deposit Ins. Corp. v. Mijalis , 15 F.3d 1314, 1330 (5th Cir. 1994).

Historically, the “appreciable prejudice” analysis has not been applied to claims-made forms ' often because courts generally distinguished claims under policies in which the claim was not required to be made and/or reported during the policy period, rather than in the context of satisfying the “as soon as practicable” requirement. For example, in Zuckerman v. National Union Fire Insurance Company , 100 N.J. 304 (1985), the New Jersey Supreme Court found that:

[A]n extension of the notice period in a claims made policy constitutes an unbargained for expansion of coverage, gratis, resulting in the insurance company's exposure to a risk substantially broader than that expressly insured against. [The appreciable prejudice doctrine] has, however, no application whatsoever to a 'claims made' policy that fulfills the reasonable expectations of the insured with respect to the scope of coverage.

Id. at 324. The court mistakenly described the policy in Zuckerman as only a “claims-made” policy. However, the notice provision stated “a claim is first made during the policy period if during the policy ' the insured shall have knowledge or become aware of any act or omission which could reasonably be expected to give rise to a claim ' and shall during the policy or extended reporting period give written notice thereof to the Company.” 100 N.J. at 308 (emphasis added). This language suggests that the policy is actually more precisely described as a “claims made and reported” contract, which covers only claims made against the insured and reported to the carrier during the policy period. See Gazis v. Miller, 186 N.J. 224, 229 (2006) (noting that the policy in Zuckerman was limited to claims made and reported during the policy period). See also Miller v. The National Catholic Risk Retention Group, Inc. , 378 N.J. Super. 59, 64 (App. Div. 2005) (applying the Cooper appreciable prejudice doctrine in an auto accident case to an occurrence policy, but also stating “the Supreme Court has declined to extend the Cooper “appreciable prejudice” doctrine to claims made policies”); Central Illinois Light Co. v. Home Insurance Co. , 821 N.E.2d. 206 (Ill. 2004); Gulf v. Dolan, Fertig & Curtis , 433 So. 2d 512, 515 (Fla. 1983).

Because the reporting requirement is sometimes considered to be one of the essential terms of many claims-made policies, courts have found that failure to provide timely notice is less excusable under these policies than under occurrence-based policies. See, e.g., City of Harrisburg v. International Surplus Lines Ins. Co. , 596 F. Supp. 954, 960-62 (M.D. Pa. 1984), aff'd 770 F.2d 1067 (3d Cir. 1985) (notice provision in claims-made and reported policy serves different purpose in occurrence policy); Zuckerman, 100 N.J. at 322-24. Thus, those courts have found coverage is unavailable to policyholders that fail to strictly comply with notice requirements in claims-made and claims-made and reported policies.

Insurers Must Demonstrate Prejudice to Deny Coverage Based on Late Notice

In Financial Industries Corp. v. XL Specialty Ins. Co., XL Specialty Insurance Company (“XL”) issued a claims-made management liability policy to Financial Industries Corporation (“FIC”). As a “condition precedent to any right to payment,” the policy required FIC to notify XL of any claim “as soon as practicable after it is first made.” Contrary to the policy at issue in Prodigy Communications, discussed infra, it appears the policy at issue in Financial Industries only required that the claim be made against the insured within the policy period ' it was not a “claims-made and reported” policy. Seven months after being sued for breach of contract and fraud (and within the policy period), FIC submitted a claim under its management liability policy. XL, however, denied FIC's claim under the policy's prompt notice provision and sought a declaratory judgment in federal court that FIC was not entitled to coverage.

The district court concluded that FIC's failure to provide prompt notice to the insurer of the claim constituted a breach of the policy. XL Specialty Ins. Co. v. Financial Indus. Corp., 2007 WL 4461190, *1 (5th Cir. 2007). The court declared that the insurer had no obligation to indemnify FIC for any fees or costs associated with the underlying claim. Thereafter, FIC appealed to the Fifth Circuit Court of Appeals.

The Circuit Court certified the following question to the Texas Supreme Court: “Must an insurer show prejudice to deny payment on a claims-made policy, when the denial is based on the insured's breach of the policy's prompt notice provision, but the notice is nevertheless given within the policy's coverage period?” Id. at *2. The parties stipulated to two key facts: 1) FIC did not notify XL “as soon as practicable” as required by the policy, and 2) FIC's failure to give notice as soon as practicable did not result in any “prejudice” to XL. Thus, the coverage determination in the case was entirely dependent on whether prejudice was required to decline coverage based on late notice under a claims-made policy form.

In its brief to the Texas Supreme Court, FIC relied on PAJ, Inc. v. The Hanover Insurance Co. , 243 S.W.3d 630 (Tex. 2008), a 2008 decision by that court that held that prejudice is required to decline coverage based on late notice for occurrence-based policies. FIC argued that even if notice is deemed late, prejudice should be required where notice was provided within the policy period for a claims-made policy.

XL distinguished the PAJ decision on two grounds. First, the general liability policy at issue in PAJ was subject to a Texas Board of Insurance order that mandated the inclusion of a policy endorsement that required prejudice for late notice “as respects bodily injury liability coverage and property damage liability coverage.” Appellate Brief of XL Specialty Ins. at 5. Specifically, XL argued that FIC's claims-made management liability policy was not subject to the same Texas Board of Insurance mandate. Second, XL argued that the PAJ court focused on the fact that the policy at issue was an occurrence-based policy, not the type of claims-made coverage at issue. XL emphasized that Texas, as well as other jurisdictions, have considered critical the distinction between claims-made and occurrence policies when it comes to requiring prejudice to prevail on a late-notice defense.

On March 27, 2009, the Texas Supreme Court answered the certified question “in the affirmative” and held that “an insurer must show prejudice to deny payment on a claims-made policy, when the denial is based upon the insured's breach of the policy's prompt-notice provision, but the notice is given within the policy's coverage period.” Financial Industries Corp. v. XL Specialty Ins. Co. , No. 07-1059, __ S.W.3d __ (Tex. March 27, 2009). Thus, if the insurer cannot demonstrate that it was prejudiced, the policyholder does not lose coverage under its claims-made policy by giving late notice of a claim, provided that its notice is still within the policy period. The court reasoned that “FIC gave notice within the policy's scope of coverage, i.e., before XL could 'close its books' on the policy,” and thus, XL was not “denied the benefit of the claims-made nature of its policy.” Id. at 3.

On the same day, the Texas Supreme Court also announced its decision in a substantially similar case, Prodigy Communications Corp. v. Agricultural Excess & Surplus Ins. Co. , No. 06-0598, __ S.W.3d __ (Tex. March 27, 2009). The policy in Prodigy Communications contained a notice provision that required the insured, “as a condition precedent” to its rights under the policy, to provide notice to the insurer “as soon as practicable ' but in no event later than ninety (90) days after the expiration of the Policy Period or Discovery Period.” The policy period under this claims-made and reported policy form was March 16, 2000 to May 31, 2000, but for an additional premium, the insured purchased a three-year “Discovery Period,” which extended coverage under the policy to any claims first made between May 31, 2000 and May 31, 2003. Thus, after exercising the extension and under the above-referenced notice provision, the insured likewise was required to report any claims “as soon as practicable,” but no later than 90 days after May 21, 2003. Like the Zuckerman court, the Prodigy Communications court repeatedly and imprecisely referred to the policy generally as a “claims-made” policy; however, given the requirement that claims be reported “in no event later than ninety (90) days after the expiration of the Policy Period or Discovery Period,” the policy language suggests that it is more precisely referred to as a claims-made and reported insurance contract.

On June 20, 2002, the insured was served with a complaint in which it was named as a defendant in a class-action securities lawsuit. Over a year later, on June 26, 2003 (within 90 days of the end of the extension period), the insured provided its carrier with formal written notice of the lawsuit.

Although the lower and intermediate appellate courts held that coverage was barred because the insured did not satisfy the policy's condition precedent that notice of a claim be provided “as soon as practicable,” the Texas Supreme Court reversed the lower courts' holdings. The court observed that “a notice provision requiring that a claim be reported to the insurer during the policy period or within a specific number of days thereafter 'define[s] the scope of coverage by providing a certain date after which an insurer knows it is no longer liable under the policy.'” Id. at 7 (quoting Resolution Trust Corp. v. Ayo , 31 F.3d 285, 289 (5th Cir. 1994)). The court noted that the insured gave notice of the class action lawsuit “before the ninety-day cutoff” provided in the policy, and therefore the insurer “was not denied the benefit of the claims-made nature of its policy as it could not 'close its books' on the policy until ninety days after the discovery period expired.” Id. at 8 (citing F.D.I.C. v. Majilis , 15 F.3d 1314, 1330 (5th Cir. 1994)).

Accordingly, the Prodigy Communications court held that “in a claims-made policy, when an insured notifies its insurer of a claim within the policy term or other reporting period that the policy specifies, the insured's failure to provide notice 'as soon as practicable' will not defeat coverage in the absence of prejudice to the insurer.” Id. at 9. The court reasoned that the provision requiring “notice 'as soon as practicable' was not an essential part of the bargained-for exchange under the claims-made policy at issue here” and that, under the fundamental principles of contract law, an affirmative showing of prejudice by the insurance company was therefore required. Id. at 2.

Conclusion

The Texas Supreme Court's holdings could be followed by other courts nationwide that grapple with notice disputes under claims-made, or claims-made and reported policies that require notice “as soon as practicable” after the underlying claim or injury-causing event. Indeed, these decisions underscore the rationale for protecting a policyholder that provides notice during the claims-made, or claims-made and reported period, even if such notice is not immediate or otherwise “as soon as practicable.” As long as a policyholder notifies its claims-made insurer within the policy period or extended reporting period, the insurer may still “close its book” at the end of the contracted-for policy period, which is purportedly one of the primary goals of a claims-made carrier that underwrites such liability. See, e.g., Federal Deposit Ins. Corp. v. Mijalis , 15 F.3d 1314, 1330 (5th Cir. 1994). Indeed, the equitable and practical concerns raised by courts considering whether to apply the “prejudice” standard to claims-made, or claims-made and reported policies, are not present when a policyholder provides notice within the policy period. See, e.g. , Zuckerman v. National Union Fire Insurance Company , 100 N.J. 304 (1985); Miller v. The National Catholic Risk Retention Group, Inc. , 378 N.J. Super. 59, 64 (App. Div. 2005) (stating that “the Supreme Court has declined to extend the Cooper “appreciable prejudice” doctrine to claims made policies”). As the Texas Supreme Court found, there is no unbargained-for or inequitable expansion of coverage in those circumstances, and, consistent with the majority of courts addressing notice provisions in occurrence-based policies, these insurers likewise should bear the burden of demonstrating prejudice by virtue of a claims-made policyholder's alleged breach of the prompt notice provisions.

Gregory H. Horowitz is a partner in the Insurance Coverage and Litigation Group of McCarter & English, LLP. He handles a variety of domestic and international coverage, and insurance broker, disputes and is based in the firm's Newark, NJ office. Mark D. Villanueva is an Insurance Coverage and Litigation Group associate in the firm's Philadelphia office and also specializes in complex coverage disputes. The opinions expressed in this article are those of the authors and not necessarily of McCarter & English or its clients.