Late Notice is Costly – Just Ask Harvard University

Don’t make the mistake that Harvard did. It cost them $15 million in insurance coverage.

In a recent decision, U.S. District Judge Allison Burroughs held that Harvard University (“Harvard”) failed to provide timely notice of a Civil Rights Act violation claim (“the Civil Rights Act claim”) to Zurich Insurance Company (“Zurich”) pursuant to the terms and conditions of the Zurich excess insurance policy.  The Zurich excess insurance policy was a claims-made-and-reported insurance policy that provided coverage for claims made during the policy period which were reported in writing to Zurich no later than 90 days after the expiration of the policy period.  Per the policy language, Harvard was required to give notice of the Civil Rights Act claim to Zurich by January 30, 2016.  Harvard did not provide notice of the Civil Rights Act claim until May 23, 2017.  In her opinion, Judge Burroughs, citing Massachusetts law, held that the unambiguous terms of an insurance policy must be strictly enforced and a policyholder’s failure to comply with the notice requirements of its claims-made insurance policy bars coverage.  While Harvard argued that Zurich was not prejudiced by the late notice, Judge Burrough’s rejected that argument and cited Gargano v. Liberty Int’l Underwriters, Inc., 572 F.3d 45, 51 ((1st Cir. 2009) which held that “[t]o require the insurer of a ‘claims made and reported policy to demonstrate prejudice from the insured’s failure to report a claim within the relevant policy period ‘would defeat the fundamental concept on which claims-made policies are premised. . . .”
    
In light of this decision, there are several practical steps a policyholder can take.

First, when a claim is received, the policyholders should review the notice provisions in its insurance policies.  When in doubt on what to do, policyholders should notice the entire tower (or towers) of coverage of the claim.  The notice language in umbrella and excess policies doesn’t necessarily follow the notice language in the underlying policies.  The notice language in the umbrella and excess policies may require notice as soon as the policyholder is aware of an occurrence, not just when the claim is likely to involve the umbrella or excess policy. 

Second, make sure that the notice provisions in the insurance policy are followed.  The insurance policy will contain language on where, when, and how notice is to be provided.  Follow the instructions in the insurance policy. In addition, when notice is sent to the insurance carriers (especially with a long-tail claim), draft the notice letter to include any and all known and unknown insurance policies issued by the insurance carrier. While many insurance carriers are now requiring notice of a new claim via email, policyholders should also send the notice letter by certified mail return receipt requested.  That way, the policyholder has the USPS green card signed by the insurance company evidencing that notice was received by the insurance carrier if the insurance carrier later claims it did not receive notice.  

Third, policyholders should work with their insurance broker to negotiate endorsements onto their insurance policies which protect the policyholder when noticing a claim.  For instance, there is an endorsement that prevents an insurance company from denying a claim if it has not been prejudiced.  The same endorsement protects the policyholder by limiting who within the company must give notice when there is knowledge of a claim.  That endorsement provides:

“You must see to it that we are notified as soon as practicable of an “occurrence”, offense, claim or “suit” after the Risk Manager or Risk Management Department or his/her designee becomes aware of such “occurrence”,offense, claim or “suit”. The failure in good faith to recognize that such “occurrence”, offense, claim or “suit” may involve this insurance shall not operate to prejudice your rights under this policy. To the extent possible, notice should include:

1. How, when and where the "occurrence" or offense took place;
2. The names and addresses of any injured persons and witnesses: and
3. The nature and locations of any injury or damage arising out of the "occurrence" or offense.

There is also an endorsement that can be negotiated that contains language that states “[i]n the event you fail to give us the required notice because the “occurrence” was inadvertently reported to another insurer, such failure will not invalidate this insurance. However, you agree to notify us of the “occurrence” as soon as practicable after you become aware of the failure.”  These are just a couple of the noticing of claim endorsements that should be discussed during the policyholder’s next renewal.
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Bottom line - don’t make the mistake that Harvard did. It cost them $15 million in insurance coverage.