24 Oct Late Means “Denied”
In virtually all annual agency reviews, claims handling is addressed. It is important to have this discussion because claims handling has been the #2 cause of E&O claims since 1986 (when the E&O Plus program, formerly PAR, was established). Among the primary drivers of this E&O activity are late reporting to excess carriers, putting all carriers on notice, and late reporting on claims made policies with specific policy language detailing the required action.
In an August 11, 2023, Claims Journal article by William Rabb, the issue of late reporting and how that can impact the availability of policy coverage is front and center. The following is an excerpt from that article.
Even the smartest institutions in the land can miss deadlines – and can lose $15 million in insurance coverage because of it, a federal appeals court decided Wednesday.
The U.S. 1st Circuit Court of Appeals upheld a lower court ruling that found that a Zurich American Insurance Co. subsidiary does not owe coverage to Harvard University in its long-running and high-profile affirmative action litigation. The reason? Harvard did not provide notice to its insurer within 90 days of the end of the policy period, as required by the policy.
“Zurich had every right to deny coverage based on lack of timely notice,” Circuit Judge Bruce Selya wrote for the panel of judges. Harvard’s arguments in its appeal “lacked force” and were “little more than gaslighting,” the opinion said.
In 2014, Harvard purchased a one-year, $25 million liability policy from AIG unit National Union Fire Insurance, which covered litigation costs for claims brought against the university. The institution also obtained a $15 million excess policy from Zurich American to cover legal costs after the AIG policy was exhausted.
Both policies were claims-based, not occurrence-based, and both required Harvard to report legal claims no later than 90 days after the end of the policy period. The policies covered November 1, 2014, to November 1, 2015.
The now-monumental lawsuit that successfully challenged Harvard’s admissions policy, culminating with a landmark ruling by the U.S. Supreme Court in June, was filed on November 17, 2014. Harvard notified AIG but failed to notify Zurich until May 2017, well after the 90-day notification window, the appeals court explained.
Zurich denied the coverage and Harvard sued. A federal district court in November 2022 decided against the school, and Harvard appealed.
The university’s attorneys argued that although Harvard did not provide formal notice of the suit, Zurich probably knew about it through news reports. The university asked for discovery to show what Zurich officials may have known about the case at the time. But the district court and the appellate judges ruled against that motion, noting that such information was irrelevant because the policy required written notice.
Harvard also argued that Massachusetts law gives insureds some leeway on late notices as long as late notice does not prejudice the insurer’s claim investigation. But the appeals court said that deadlines are even more important in claims-based policies so insurers can accurately set premiums.
I would guess that Harvard has the money to pay any potential claims, but not all clients will be in that position. This is when E&O claims can develop.