The Bottom Line

• A recent federal court decision may cost Harvard University
  millions of dollars and serves as a reminder to policyholders to
  adhere to the notification requirements of both 
  their primary and excess insurance policies.




• While the decision is based on one policy type and one kind of
  notice and reporting requirement, the lesson applies to all
  insurance policies and all notice requirements.




• Companies should evaluate the notice requirements in their
  insurance policies to ensure they understand the reporting
  requirements or risk losing coverage.

Failure to comply with an insurance policy’s notice and
reporting deadlines and requirements could result in loss of
coverage and cost millions of dollars. A recent decision by the
U.S. District Court for Massachusetts emphasized this cautionary
tale. The decision concluded that a
“claims-made-and-reported” insurance policy’s
terms must be strictly enforced or the coverage that the policy was
supposed to provide will be lost. Critically, evidence that the
insurance provider had actual knowledge of the potential claim will
not circumvent the policyholder’s responsibility to notify
the insurer under the policy’s terms.

Failure to Notify Insurance Company

Harvard University’s undergraduate admissions program is
the focus of a high profile litigation, Students for Fair
Admissions, Inc., v. President and Fellows of Harvard
College  (the SFFA action).In anticipation of potentially
costly litigations like this, Harvard obtained primary insurance
coverage through National Union Fire Insurance Company (AIG). In
addition, Harvard obtained an excess insurance policy from Zurich
American Insurance Co. The AIG policy has a policy limit of $25
million, while the Zurich policy was a “follow form”
policy intended to cover defense costs in excess of AIG
policy’s limit. The cost of defending against the SFFA action
has cost Harvard more than $25 million to date. Accordingly,
Harvard intended to use the Zurich policy to cover those additional
costs.

The Zurich Policy is a “claims-made-and-reported
policy,” which covers claims: (1) made during the policy
period of Nov. 1, 2014 to Nov. 1, 2015, and, critically in this
situation, (2) reported in writing to Zurich no later than 90 days
after the end of the policy period. While Harvard gave timely
notice to primary insurance carrier AIG, Harvard failed to provide
written notice to Zurich until May 23, 2017 — more than a
year after the policy period expired.

Zurich denied coverage and refused to pay for Harvard’s
defense costs based on the university’s non-compliance with
the Zurich policy’s notification requirements. In September
2021, Harvard sued Zurich for breach of contract, arguing that
“technical non-compliance” should not bar the
university from receiving the benefit of its bargain with Zurich.
In President and Fellows of Harvard College v. Zurich
American Insurance Company, Zurich filed a motion for summary
judgment, arguing that Harvard’s failure to comply with the
reporting requirements of its policy were fatal to Harvard’s
claim for coverage as a matter of law and warranted dismissal of
the complaint.

The Decision

Harvard attempted to excuse its non-compliance with the
notification requirements by arguing that Zurich
had actual knowledge of the ongoing litigation
since it was such a high-profile case and received extensive news
coverage. The court, however, held that it was “clear that
Zurich’s lack of prejudice, or constructive, or even actual
knowledge would not change Harvard’s obligation to provide
notice in full compliance” with the policy’s terms

The court added: “[p]ut 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”
invalidates coverage.While the insurable event occurred during the
policy period, Harvard lost the ability to get coverage because it
failed to notify the insurance company in the time provided for in
the policy.

Harvard indicated it intends to appeal.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.

POPULAR ARTICLES ON: Insurance from United States