On June 29, 2023, the case of Students for Fair Admissions, Inc. v. President and Fellows of Harvard College culminated in a landmark ruling by the U.S. Supreme Court, which held that colleges and universities can no longer take race into consideration as a specific basis for granting admission.1 It’s a decision that will have lasting impact, yet it is not the only loss Harvard suffered in relation to this matter. The prestigious school also lost a breach of contract case challenging a denial of its insurance claim for millions in legal fees related to Students for Fair Admissions v. Harvard.
For legal professionals wary of a malpractice claim, it is this second case, President and Fellows of Harvard College v. Zurich American Insurance Company, which may deserve closer attention.2 Harvard v. Zurich hinged on the college’s delay in officially reporting its high-profile claim to its insurer. Here’s a closer look at what happened and three important takeaways for lawyers when it comes to delayed claims.
Seeking Out Protection
The early 2010s were a litigious time for colleges and universities, spurring many to manage their risk through additional insurance protection. In 2014, Harvard acquired liability coverage designed to protect a policyholder from the costs associated with defending against a lawsuit, including legal fees, expenses, judgements and settlements.
Because of the high risk involved, Harvard did what many commercial insurance customers do: it bought two policies at the same time, one for primary coverage and a second for additional protection.
According to the school’s original complaint, the first was an “Educational Institution Risk Protector” liability policy acquired from the National Union Fire Insurance Company of Pittsburgh, Pa., a subsidiary of American International Group (AIG). The AIG policy offered $25 million of primary coverage after meeting a risk retention deductible of $2.5 million.
For risks exceeding the protection afforded by this policy, Harvard obtained a secondary “Excess Select” insurance policy from Zurich American Insurance Company with coverage of $15 million. This protection was to come into effect once Harvard had met the deductible and exhausted the limits of the primary AIG policy.
Both policies were designed as “claims made” forms, meaning that valid claims would be covered so long as they were reported during the policy period, or according to other specified terms of the policy. Claims-made policies differ from “occurrence” policies, which may cover claims for incidents that take place during a policy period but are not reported as claims until after the policy expires.
In this case, the primary AIG claims-made policy allowed reporting up to 90 days after the end of the policy period. Both featured a policy period of November 1, 2014 through November 1, 2015. Unbeknownst to Harvard at the time, Students for Fair Admissions would file their lawsuit only weeks after the two policies took effect, on November 17, 2014.
Facing a Claim
Most lawsuits and insurance claims are not a media event. They are typically only known to the parties involved. But that’s not always the case. With the event fresh in many lawyers’ minds, it’s easy to recall that the Supreme Court decision of Students for Fair Admissions v. Harvard was one of the top new events the day it happened. Yet more than nine years ago, the initial filing of the Students case was also a major media event.
Harvard’s Zurich claim notes that this admissions lawsuit was covered by CNN, Fox News, New York Times, Washington Post, Wall Street Journal, USA Today, Associated Press and others. Harvard’s complaint also claims that Zurich personnel frequently attended meetings with Harvard officials during the policy period, and asserts that these representatives were aware of the Students for Fair Admissions v. Harvard litigation.
With the publicity of the case, it was clear early on that the Students lawsuit was likely to result in a qualifying insurance claim. Harvard’s complaint affirms it formally reported the litigation to AIG during the policy period and began receiving benefits of coverage.
Navigating Contract Confusion
An insurance policy, like any contract, is not always easy to decipher. Even competent professionals can have questions. The Harvard complaint points to several confusing contractual statements within its two insurance policies, which may have contributed to the delayed claim.
The AIG Policy
At 149 pages, it’s fair to say the college’s primary AIG policy is not an easy policy to read. Instructions for giving formal notice of a claim appear on page 58, and by insurance standards, the terms are quite generous.
The policy states that written notice:
- May be given by email or postal mail.
- Is to be given “as soon as practicable.”
- Is not required until a class action is certified.
- Is not required until the loss exceeds 50% of the retention.
The AIG policy even suggests that the policyholder may provide a summarizing “bordereau of claims” on a semi-annual basis, and states that subsequent related claims arising out of a properly reported initial claim, or incident that has the potential to become such a claim, will be considered to have been properly reported according to the policy.
However, the policy does specify that any and all initial claims must be properly reported no later than 90 days after the policy period, a condition Harvard reportedly met with its AIG claim.
The Zurich Policy
Unlike an umbrella policy, which may cover perils and losses excluded by a primary underlying policy, an excess policy is typically designed to have the same areas of coverage and exclusion as the underlying primary policy. That’s generally the case with Harvard’s Zurich policy, where coverage tracks very closely to the followed AIG policy. In fact, the first statement on the Zurich declarations page reads:
This policy follows to the terms, conditions, and limitations of the followed policy.
Later, under a section for conditions of insurance, the Zurich policy similarly states:
As a condition precedent to exercising any rights under this policy, the Policyholder shall give the Underwriter written notice of any claim or any potential claim under this policy or any Underlying Insurance in the same manner required by the terms and conditions of the Followed Policy.
However, the same section continues:
Notwithstanding the foregoing, notice to the insurer(s) of the Followed Policy or other Underlying Insurance does not constitute notice to the Underwriter. Written notice of any claim or potential claim shall be provided to the Underwriter at the address set forth in Item 5.A. of the Declarations.
The notice address lists a Zurich P.O. Box, fax and email address where policyholders should submit such written claims.
Suffering a Loss at Court
Harvard’s complaint against Zurich alleges that it gave formal notice a claim was likely “as soon as practicable,” which to Harvard meant “in or around May 2017.” This was more than a year after January 30, 2016, the latest date either of the two policies allowed an initial claim to be officially reported.
Harvard claimed that it had good reason to do so. Initially, it was not clear the claim would exceed both the retention deductible and the $25 million limit of the AIG policy. In fact, Harvard’s complaint argues that at the time it did give Zurich formal notice, the $25 million AIG limit “was far from being exhausted” and that defense costs “were not even close” to the attachment point of the Zurich policy.
After Harvard reported its claim to Zurich, the next events in the timeline were as follows:
- On October 25, 2017, Zurich gave Harvard written notice of its denial, stating that the matter would have been considered a covered claim if not for the late notice.
- On September 17, 2021, Harvard filed its original lawsuit against Zurich in the U.S. District Court for the District of Massachusetts.
- On November 2, 2022, the District Court granted summary judgement in favor of Zurich and dismissed Harvard’s case. Harvard appealed.
- On August 9, 2023, the U.S. Court of Appeals for the First Circuit reviewed the District Court’s judgement de novo and affirmed the lower court’s summary judgement for Zurich.
Writing for the U.S. District Court, Judge Burroughs explained:
Massachusetts law is clear that (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…
Prejudice and actual or constructive knowledge are not exceptions to the general rule…
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 coverages, Zurich’s motion for summary judgement, is therefore granted.
Writing for the U.S. Court of Appeals, Judge Selya noted:
In the case at hand, Harvard sought supplemental discovery on the issue of whether Zurich had actual notice of the underlying claim. But any evidence to that effect would have been irrelevant to the summary judgement inquiry…
The dispositive factual issue before the district court was whether Harvard provided timely written notice to Zurich as required by the excess policy—an issue to which the summary judgement record offered a clear answer. Further discovery on the issue of actual notice would have been entirely beside the point…
For the reasons elucidated above, the judgement of the district court is affirmed.
Takeaways: Learning from Harvard’s Mistake
It goes without saying that Harvard has access to some of the best lawyers in the world. Yet even so, confusion over terms of an ordinary insurance contract led to an oversight from which the school could not recover its losses.
For lawyers analyzing the insurance coverage of a client, several points are essential to understand:
1. Understand the Policy
Like all contracts, an insurance policy sets out specific terms, conditions and obligations for coverage to be provided. While the entire document is important, special attention should be given to the correctness of the insured’s information on the documentation page, the policy amendments endorsing and excluding coverage and the definitions of terms as they are defined within the policy. To avoid a situation like Harvard found itself in, also be sure to note the date and time when coverage begins and ends, as well as the correct procedures for reporting a claim.
2. Report Claims Early
A particular client’s insurance policy may be unusually accommodating when it comes to how and when an insured must report their claims, as in the case of Harvard’s AIG policy. But not all policies are like that. The best practice is to report every claim as early as possible. The notice of facts that an insurer needs upfront to begin a claim are usually minimal. Key dates, the names of the parties involved and a brief description are usually all that’s required. Early reporting also has the benefit of increasing the likelihood a claim can be resolved quickly and for less expense than claims reported later when evidence may be lost and memories of events fade.
3. Report All Possible Claims
At the time a claim needs to be reported, it may not make the most sense to do so, as in the case of Harvard’s Zurich claim. But as that example shows, the claim should be reported anyway. The best practice here is to always err on the side of caution and report any potential claim as soon as it is possible to do so. There are a number of cases in the insurance world where small and minor incidents eventually grew into sizeable claims. A client is best protected against the expense and risk of such claims by properly reporting them to their insurer.
As is evidenced in Harvard v. Zurich, even the best of lawyers can make a mistake. Make sure your firm is protected with the right malpractice insurance.
To learn more about coverage from Lockton Affinity Lawyer, visit us online or call (844) 398-0465.
- See Students for Fair Admissions, Inc. v. President and Fellows of Harvard College, 20-1199, (600 U.S. __ 2023).
- See President and Fellows of Harvard College v. Zurich American Insurance Company, 1:21-cv-11530, (D. Mass. Sept. 17, 2021).