N.J. court upholds legitimacy of claims-made policy where insured rejected retroactive coverage

In what lawyers say is a precedent-setting decision, a New Jersey court has ruled that a claims-made insurance policy that did not include retroactive coverage does not violate public policy and is enforceable.

An insurance company had offered a home inspector retroactive coverage, but the inspector had declined it when he purchased the insurance policy. The inspector later sued the insurer, claiming that a liability policy without retroactive coverage was illegal and violated New Jersey public policy.

Attorneys from Traub Eglin Lieberman Straus LLP demonstrated that the insurance company provided many written opportunities, in easy-to-understand language, for the inspector to purchase the retroactive coverage; however, each time the inspector declined the coverage.

The Superior Court of New Jersey in Essex County ruled that the policy did not violate New Jersey public policy and was perfectly legal.

The case arose when the insured inspection company was sued for negligence arising from a home inspection performed in 1999. The inspection company sought coverage under its liability policy, but was denied coverage because the retroactive date of the policy was the same date that the policy began (meaning there was no retroactive coverage for prior acts).

In a victory for companies issuing claims-made policies, the court ruled that the insurer’s notice of retroactive coverage was clear and “straightforward” and that, when faced with a choice between the two policies, the insured knowingly opted not to purchase retroactive coverage.

The case was Caine, et al. v. Dorval, et al. and R.K.M. Inspection Services Inc. v. Evanston Insurance Company, et al. (New Jersey Superior Court, Law Division, Essex County, docket number ESX-L-9485-02).