How A Late Claims Notice Can Affect Owners

September 7, 2023

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A federal appeals court ruled that Zurich Insurance was correct in denying coverage to Harvard University because of “lack of timely notice.”

The notorious case involved is the challenge to Harvard’s admission policy and the used affirmative action and race as a factor. Students for Fair Admissions vs Harvard was filed on November 17, 2014. At the time, Harvard had a $25M policy with AIG and a $15M excess policy with Zurich. Both policies were:

  • in effect November 1, 2014 to November 1, 2015
  • “claims-made,” not occurrence based
  • required notice of legal claims no later than 90 days after the policy expiration

Harvard notified AIG in a timely manner but failed to notify Zurich of the claim until May 2017.

After the coverage denial by Zurich, Harvard sued them. A federal district court in 2022 decided against the school, and Harvard appealed. The U.S. 1st Circuit Court of Appeals upheld the lower court ruling on August 11, 2023.  

The court rejected Harvard’s theories as lacking force and “little more than gaslighting.” Harvard’s attorneys argued that although they did not provide formal notice, Zurich probably knew about the claim due to the news coverage, and asked to conduct discovery to find out what they may have known. The appeals court ruled that such information is irrelevant because the conditions of the policy required written notice from the insured. Harvard’s attorneys also argued that Massachusetts law gave some leeway on late notice so long as there was no prejudice, or harm, to the insurer’s ability to investigate the claim. The appeals court also rejected this, pointing out that the very nature of claims-made policies makes deadlines even more important.

These policies cover claims made during the policy period and the reporting requirements are not only to facilitate an investigation and minimize the time to settlement or conclusion, but also the purpose of fairness in rate setting. If a claim is made against the insured but the insurer doesn’t know about it for years, the purpose of insuring claims and not occurrences is thwarted.
“Not all liability insurance policies are on an equal footing, and the ‘no harm, no foul’ principle does not apply to failures to give timely written notice under claims-made insurance policies,” the 1st Circuit’s opinion states.

The claim reporting provisions in insurance policies can vary greatly depending upon whether the policy is written on a “claims-made” or “occurrence” basis, so it is critical for insureds to understand the type of policy they have and to meet the reporting requirements. Otherwise, they risk losing their coverage. 

If you have any doubt about your contract reporting requirements, reach out to your Broker for confirmation, especially if you received an attorney letter. If you are looking for a Broker who provides additional insights into your claims, contact TSIB today and speak with one of our Risk Consultants. 

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Topics: Claims, Contracts, Construction Trends, Construction Insurance

Written by The TSIB Team

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