Late Policy Notice to Zurich Leads To Harvard’s Loss of $15 Million in Coverage

In an unusually short summary judgment decision, the United States District Court has dismissed Harvard University’s (“Harvard”) lawsuit seeking $15 million in coverage for its legal fees in a discrimination lawsuit.

Harvard filed a federal lawsuit in September 2021 in an effort to have its excess insurance carrier cover Harvard’s legal costs for defending against a 2014 discrimination complaint and a related 2017 Department of Justice probe. Harvard’s primary insurer’s $25 million liability limit has been exhausted by the legal costs of defending the discrimination lawsuit and responding to the government probe.

The $15 million excess policy had a claim-made and reported provision requiring notice within ninety days of the policy expiration to the excess insurer of any claims made during the policy period. Harvard did not report the discrimination claim until 2017, but it argued unsuccessfully that the excess carrier had knowledge of the claim and that it had suffered no prejudice.

The Court disagreed, noting that Massachusetts law strictly construes claims-made policy notice requirements. The Court rejected Harvard’s claim that the carrier’s constructive knowledge of the claim constituted effective notice to the carrier sufficient to trigger coverage.

The underlying lawsuit burning up legal fees on its way to the US Supreme Court

Students for Fair Admissions (SFFA), in 2014, filed a lawsuit against Harvard, claiming that Harvard imposed a soft racial quota designed to keep the number of Asian American students admitted artificially low. This practice, SFFA alleged, thereby discriminated against Asian American students in favor of other racial groups in violation of Title VI of the Civil Rights Act of 1964.

After the extensive legal discovery of Harvard’s admission records and a fifteen-day jury-waived trial, the federal district court ruled in favor of Harvard. The United States Court of Appeals for the First Circuit heard and denied the SFFA’s appeal. However, the United States Supreme Court granted the SFFA’s application for a writ of certiorari, allowing the SFFA arguments to be heard by the highest court in the United States.

The Supreme Court heard oral arguments on the SFFA’s case on October 31, 2022, before six of the seven Supreme Court Justices. A decision is expected by June of 2023. A decision in favor of the SFFA would make major changes in the admission practices of colleges and universities throughout the country.

The Zurich $15 million follow-form excess policy

In 2014, Harvard had a comprehensive coverage “tower” for its potential educational practices risks.

Harvard’s primary coverage was an Educational Institution Risk Protector liability insurance policy that the National Union Fire Insurance Company of Pittsburgh, PA, issued with a $25 million combined defense and indemnity limit after Harvard’s $2.5 million self-insured retention. Harvard then had, as a second layer, a Zurich American Excess Select policy which followed the form of the National Union policy.

The Zurich policy provided an additional $15 million of combined defense and indemnity limits upon the exhaustion of the National Union limit. Both the Nation Union and Zurich policies had effective dates from November 1, 2014, to November 1, 2015, and were written on a claims-made and reported basis.

The National Union policy had as a condition that “all claims…must be reported to the Insurer no later than ninety (90) days after the end of the Policy Period.”

Harvard’s notice to Zurich in 2017 of the 2014 lawsuit.

On May 23, 2017, Zurich American Insurance Company (“Zurich”) acknowledged receipt of a claim notice from Harvard’s broker, Marsh, regarding the SFFA lawsuit pending in the federal district court for the District of Massachusetts since 2014.

On August 30, 2017, Zurich wrote to Harvard, reserving its right to deny coverage for the SFFA lawsuit on the ground the May 23 notice was not timely, stating, “we would be remiss if we failed to note that although the complaint in this matter was filed in November 2014, Zurich did not receive notice of it until May 2017. If notice was submitted previously, please forward the original notice materials to us as soon as possible for our review.”

On October 25, 2017, Zurich denied coverage to Harvard based upon the ninety-day claims-made reporting provision under the AIG policy, which provision the Zurich policy followed in form.

At the time Zurich denied coverage, the defense costs Harvard had incurred under the AIG policy totaled $2.56 million, with $22.44 million in coverage remaining. As a result, Harvard and Zurich entered into a tolling agreement to defer litigating coverage unnecessarily.

Harvard’s lawsuit against Zurich after exhausting its $25 million primary limit

By March 2021, Harvard was requesting Zurich to reconsider its denial of coverage.

Harvard’s legal fees to defend the SFFA lawsuit and to respond to a related Department of Justice investigation about discriminatory admission policies at Harvard had exhausted the AIG policy’s $25 million limit.

After Zurich stood by its denial, Harvard filed, on September 27, 2021, a lawsuit against Zurich in federal court in Boston, seeking for the court to overturn Zurich’s denial of coverage for the late notice of the SFFA action.

In its action, Harvard sought a declaratory judgment that Zurich could not rely upon late notice of the 2014 lawsuit because Harvard alleged that Zurich had actual knowledge of the 2014 action “by late 2014, or early 2015, and no later than January 30, 2016.”

Harvard’s position was that allowing the insurance company to deny coverage on the pretext of “late notice” served simply to punish the policyholder for no good reason and to enrich the insurance company that was aware of the claim from the beginning.

For a detailed description of the policies involved and the coverage lawsuit, See Agency Checklists’ article of October 5, 2021, “Harvard College Sues Zurich to Overturn A Late Notice Denial of A $15 Million Policy Claim.”

Zurich’s motion for summary judgment and Harvard’s opposition

The discovery phase in Harvard’s lawsuit did not last long.

On August 17, 2022, Zurich moved for summary judgment. The nub of Zurich’s motion for summary judgment against Harvard presented a succinct statement of law:

The undisputed evidence also establishes that the underlying claim for which Harvard seeks coverage was filed on November 17, 2014, during the policy period, but that Harvard did not report that claim to Zurich until May 23, 2017, more than eighteen (18) months after the end of the policy period. Harvard’s failure to comply with the strict reporting requirements of the Zurich policy relieves Zurich of any obligation to provide coverage for the underlying claim as a matter of law

In response to Zurich’s motion, Harvard argued that the totality of the facts showed that Zurich had actual knowledge of SFFA action sufficient to satisfy the purpose of the policy’s notice provision.

Harvard asserted that the filing of the SFFA lawsuit against Harvard in 2014 was prominently featured in major news outlets in 2014 and 2015, including The New York Times, Washington Post, Boston Globe, Reuters, CNN, Fox News, and many other media outlets.

The persons working at Zurich involved with Harvard’s account were, Harvard claimed, certainly aware of the news reports about the SFFA lawsuit.

Therefore, Harvard argued Zurich effectively had knowledge of the SFFA lawsuit against Harvard reasonably soon after it was filed in 2014 and prior to the end of the policy reporting period on January 30, 2016.

Court rules knowledge without notice insufficient to waive policy reporting requirement for a claims-made policy

The Court began its ruling on Zurich’s summary judgment motion by stating the short list of undisputed facts necessary for its conclusions.

The Zurich policy was a “claims-made-and-reported policy” which covered claims:

(1) made during the policy period of November 1, 2014, to November 1, 2015, and

(2) reported in writing to Zurich no later than ninety days after the end of the policy period.

Thus, the Court concluded Harvard, as a “condition precedent” to coverage, had to give notice, in accordance with the policy, to Zurich of any claim no later than January 30, 2016, ninety days after the expiration of the policy.

In this case, the Court noted, there is no dispute that Harvard’s first notice to Zurich of the relevant claim was made on May 23, 2017.

The Court Ruled Notice on a claim-made policy states a condition precedent to coverage

Based on its summary of the material policy provisions and the fact when Harvard gave Zurich notice, the Court ruled that Massachusetts law was clear:

(1) the unambiguous terms of an insurance policy must be strictly enforced, and

(2) an insured’s failure to comply with the notice provision of a claims-made policy bars coverage. “

Because the Zurich policy was a claims-made and reported policy, a notice of any covered claim made against the insured during the policy period being reported to the insurer within the time allowed by the policy was a condition precedent to coverage. As the Court stated this point:

With regard to claims-made policies such as the one at issue here, notice within the policy period “is of the essence in determining whether coverage exists.” Massachusetts law dictates that “[a]n insured’s failure to notify his insurer of a claim against him within the policy period of a claims-made policy precludes coverage.”

Constructive knowledge does not equal effective notice under a claims-made policy

The Court rejected Harvard’s argument that Zurich’s constructive or actual knowledge of the SFFA claim would constitute sufficient notice to trigger Zurich’s coverage.

The Court pointed out that even notice to an insurer’s underwriters about a claim had been held insufficient to be considered as the required notice of a claim under the strict provisions of a claims-made policy. Here, without the formal notice of the claim in a timely manner, whether Zurich might have known about the SFFA lawsuit through the media or by monitoring Harvard’s claim activities was irrelevant. Absent the timely report of the SFFA claim made during the policy period, Harvard had no coverage under Zurich’s policy.

The final order entering summary judgment against Harvard

The Court’s final decision was clear.

Harvard’s arguments to the contrary are all unavailing, unsupported by case law, controlling or otherwise. Put simply, because an unambiguous insurance policy must be applied as written, the notice provision in a claims-made policy must be strictly construed, and Harvard’s failure to satisfy a condition precedent vitiates coverage, Zurich’s motion for summary judgment is therefore GRANTED.

Harvard has thirty days to appeal the final judgment

The Court dismissed Harvard’s lawsuit, based on it entering summary judgment for Zurich on November 2, 2022. Under the Federal Rules of Appellate Procedure, Harvard has thirty days from November 2 to appeal the dismissal of its suit against Zurich to the First Circuit Court of Appeals.

Agency Checklists will keep its readers posted.

Owen Gallagher

Insurance Coverage Legal Expert/Co-Founder & Publisher of Agency Checklists

Over the course of my legal career, I have argued a number of cases in the Massachusetts Supreme Judicial Court as well as helped agents, insurance companies, and lawmakers alike with the complexities and idiosyncrasies of insurance law in the Commonwealth.

Connect with me directly, by calling me at 617-598-3801.