On November 2, 2022, a federal judge in Boston barred Harvard University from using its $15 million litigation claims policy to cover legal expenses in connection with its admissions program lawsuit – because Harvard (yes, that hallowed Ivy League institution, full of very smart people) neglected to give timely notice of the claim. Yikes!
The University’s claims-made-and-reported policy with Zurich American Insurance covered claims (1) made between November 1, 2014 and November 1, 2015, and (2) reported to Zurich in writing no later than ninety (90) days after the end of the policy period. In other words, Harvard was required to give notice of all claims no later than January 30, 2016 (90 days after the expiration of the policy). Harvard did not give notice to Zurich until May 23, 2017, more than a year after the deadline!
Under Massachusetts law (as well as in other states), the unambiguous terms of a contract – including policy terms and notice requirements – must be strictly enforced. Additionally, an insurer’s actual or constructive knowledge (such as through the extensive media attention this case has received) is insufficient to trigger coverage obligations if notice is not technically reported in accordance with the contract. And even if the insured party provides information about a claim to the insurer, courts have considered the information insufficient if it was not reported according to policy terms. Here, because Harvard failed to comply with the technical notice requirements of its insurance policy, Zurich was off the hook.
This case offers an important lesson for employers who have purchased employment practices liability insurance (EPLI) to cover the defense and liability costs of certain employment claims. How can employers avoid making the same mistake as (ahem) Harvard? The first step is to be aware of the possible differences in EPLI reporting requirements:
- Claims-Made Coverage. Claims-made policies protect the policyholder against claims made against the insured party during the policy period, or during any extended reporting period (if specified in the policy terms). Under a claims-made policy, an insured party’s failure to provide timely notice of a claim to the insurer may bar coverage, even if the insurer is not prejudiced by the delay. Claims asserted after the policy period expires are not covered under this policy, even if the conduct occurred during the policy period unless there is a “prior acts” provision included.
- Claims-Made-and-Reported Coverage. Claims-made-and-reported policies require that the claim arise during the policy period, and the insured party report the claim to the insurer during the policy period. This was Harvard’s policy with Zurich. Under a claims-made-and-reported policy, timely reporting is usually a precondition to coverage. Therefore, prompt reporting is a must!
- Occurrence Coverage. Occurrence coverage policies protect claims that occur during the policy period, regardless of when the claim arises or is reported to the insurer. Unlike the previous policies, occurrence policy claims may be filed after the underlying coverage ends. Employment claims such as sexual harassment, discrimination, or hostile work environment claims, involve conduct that occurs over several years, so occurrence coverage may result in expensive and lengthy disputes about timing and whether an event occurred during the policy period.
The next step is for employers to know their individual EPLI policy and ensure compliance with the required manner and method of reporting. Employers are strongly encouraged to identify a responsible person to review their insurance policy requirements and to report insurance claims on time. Let’s not be like Harvard, at least not this time!
*(Editor’s note – for those of us who are not fully up on the lingo, the Urban Dictionary defines “fumble the bag” as when you “majorly screw up something.” Except that the Urban Dictionary uses a more explicit term than “screw up.” And there’s a bonus lesson for you.)