The Cost of Late Notice to Your Company’s Insurer

Company leaders—whether the GC, chief executive, or some other officer in charge—often call their outside counsel when a formal claim is made against them, or a dispute appears headed toward formal litigation. What business leaders often don’t think to do is put their insurance carrier on notice as soon as a claim is made. As a recent District of Massachusetts decision related to the heavily publicized Harvard affirmative action lawsuit reinforces, failing to alert your insurance carrier of a claim can have severe consequences. 

For Harvard, these consequences materialized as a $15 million loss. 

In November 2014, Harvard was sued in connection with rejecting a group of anonymous Asian American students from admission to the university. Still, the school did not provide its insurance carrier, Zurich, a notice of the claim until May 23, 2017. Zurich then denied coverage, relying on its “claims-made” policy, which requires that any claims asserted in the policy period be reported to Zurich no later than 90 days after the expiration of the policy period, i.e., by January 30, 2016. Significantly, that coverage would have applied to the $15 million in legal fees Harvard incurred to defend the lawsuit. 

Incredulous by Zurich’s denial of coverage, Harvard sued Zurich, which moved for summary judgment based on the policy language and Harvard’s late notice. Harvard responded by arguing that, in light of the “significant, ongoing attention that the suit received in national and local news,” Zurich had “actual or constructive notice” of the claim and was not prejudiced by any hyper-technical failure by Harvard in providing formal notice. 

Judge Allison Burroughs of the Federal District Court was unmoved by Harvard’s practical arguments, noting that Massachusetts law “leave[s] no wiggle room” to excuse an insured’s noncompliance with the notice provisions of a claims-made policy. Judge Burroughs then went on to say that in Massachusetts, “(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.” In sum, Judge Burroughs held that because Zurich’s policy plainly stated that Harvard had 90 days after the expiration of the policy period to make its claim for coverage, and it did not do so, Harvard could not later lobby for leniency. 

This case is a stark reminder that Massachusetts law strictly construes notice provisions in claims-made policies, and in-house counsel should learn from Harvard’s mistake. When any dispute is on the horizon, it pays to look at the company’s policies, ask your broker if coverage applies, ask your outside counsel if coverage applies, and don’t be shy about demanding coverage. Making such a demand will cost you nothing, whereas failing to do so could put you in the same category as Harvard – and this is one area in which you don’t want to be compared to that venerable institution.

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