New Jersey Appellate Court Holds No Coverage for Broker Malpractice Lawsuit Noticed Three Years After It Was Filed

The Superior Court of New Jersey, Appellate Division has held that there is no coverage under an insurance broker’s claims-made professional liability policy because the policyholder reported the claim to the insurer three years after it was first made. Republic Franklin Ins. Co. v. Ficke & Assocs., LLC, 2022 WL 4588097 (N.J. Super. Ct. App. Div. Sept. 30, 2022).

A broker was sued for malpractice by one of its clients, whose insurer had denied coverage for the property damage caused by one of the client’s tenants. A default judgment was entered against the broker, who failed to respond to the suit. Three years later, and after the broker had renewed the policy multiple times, the broker reported the malpractice suit to its professional liability insurer. The insurer denied coverage based upon the policy’s reporting requirement that notice be made “as soon as practicable.” However, the insurer agreed to provide the broker a defense in its effort to vacate the default judgment against it, unless the broker preferred to handle its own defense.

The insurer subsequently filed a declaratory judgment action, asking the court to determine its defense and indemnity obligations in light of the broker’s late notice. The trial court granted summary judgment to the insurer based on the late notice of the suit.

On appeal, the broker argued that the trial court had ruled improperly because, although the policy required notice to be given “as soon as practicable,” that provision meant “as soon as is ripe,” and the broker had waited until the suit against him “was ripe” before notifying the insurer. The Appellate Division rejected that argument. It noted that New Jersey courts have interpreted “as soon as practicable” to mean “within a reasonable time,” and that reporting requirements are critical to the distinction between claims-made and occurrence policies. The appellate court further noted that the broker “waited three years and renewed its insurance three times, certifying there was no claims made against it. [The broker’s] unreasonable conduct is measured by the fact it acted only after a default judgment [was] entered, depriving [the insurer] of its ability to conduct the defense. For these reasons, the motion judge properly found summary judgment in favor of [the insurer] based on the policy’s clear and unambiguous language.”

The court further held that the insurer was not estopped to rely on its late notice defense, finding that the insurer’s reservation of rights letter offering to defend the broker sufficiently communicated the insurer’s intent to disclaim coverage, that the defense was subject to reservation, and expressly informed the broker of its right to reject the insurer’s offer.