The insured argued that late notice does not void an insurance policy unless there is both a breach of the notice condition and a substantial likelihood of appreciable prejudice to the insurer. And, the insured said that appreciable prejudice exists only where substantial rights of the insurer have been irretrievably lost, and the insurer can show a likelihood of success in defending against the victim's claims.

The court said that the determination of whether an insured gave notice to its insurer within a reasonable time typically depends on the facts and circumstances of the particular case, and is a question of fact for resolution by the jury or the fact-finder. In this instance, the facts showed that RSUI was clear and unambiguous in the conditions it imposed in both policies. The terms of each policy unequivocally required Hermann to notify RSUI of any claims made during that policy period or within thirty days of the policy's expiration. Hermann reported the claim after both policies and their respective grace periods had expired. Moreover, the insuring agreements in both policies stated that the coverage existed only for claims first made against the insured during the policy period.

The court further noted that any extension of the notice period in favor of Hermann would constitute an unbargained-for expansion of coverage, gratis, resulting in the insurance company's exposure to a risk substantially broader than that expressly insured against in the policy. This would also unjustly advantage the insured since such an expansion in the coverage provided by claims-made policies would significantly affect the cost of claims-made insurance.

The insured's failure to report the claim as called for in the claims-made policies required the court to grant the summary judgment motion in favor of the insurer.

Editor's Note: Most states require that the insurer show prejudice in order to justify denying coverage due to late notice by insureds. And indeed, New Jersey is one of those states in this category. However, the court in this instance was faced with a very clearly worded claims-made policy requiring that notice be given during the policy period (or the stated reporting period) and the insured could not offer any reasonable explanation for the delay in reporting. So, the showing of prejudice aside, the insured here clearly violated the conditions precedent to coverage and the court found the decision to deny coverage was acceptable.

A claims-made policy is not the type of policy for every insured, but if that is the type chosen by the insured, clearly worded and highly emphasized language about the claim notice requirement would serve the interests of both the insured and the insurer. The insured gets the coverage it pays for, and the insurer is not forced into a coverage dispute.