Harvard University must pay its own defense costs in the ongoing legal challenges to its affirmative action program after losing a battle with its insurance carrier, Zurich American Insurance Company (Zurich).

On November 2, 2022, Judge Allison Burroughs of the US District Court for the District of Massachusetts granted Zurich’s motion for summary judgment, dismissing Harvard’s lawsuit against Zurich. The court determined that Harvard failed to timely notify its insurer of its underlying claim. Under the terms of the insurance policy, Judge Burroughs held, Zurich has no duty to cover Harvard’s defense costs — a decision likely to burden the university with about $15 million in un-reimbursed costs.

Background

Since 2014, Harvard has been fighting a legal challenge to the way it uses race in its admissions program. In Students for Fair Admissions, Inc. v. President and Fellows of Harvard College (Harvard Corporation), et al., the plaintiff is a legal advocacy group that contends that Harvard violates Title VI of the 1964 Civil Rights Act by using race as a factor in its admissions analysis. The group claims that the school artificially limits the acceptance rate of Asian Americans compared to other qualified applicants in an effort to assemble a racially diverse student body. Harvard argued that its admissions program is consistent with longstanding US Supreme Court precedent that colleges and universities may consider race as one of many factors in admissions decisions. Harvard’s position has been supported by many other selective institutions.

Harvard’s admissions program has been consistently upheld, first by the District of Massachusetts following a 15-day bench trial and then by the US Court of Appeals for the First Circuit. The Supreme Court granted certiorari on January 24, 2022, and oral arguments were held on October 31, 2022. The case has attracted significant national attention for potentially eliminating the ability of universities to consider race in the admissions process. A decision is expected in June 2023.

Additionally, and unrelated to the underlying litigation, the US Department of Justice (under the prior administration) opened an investigation into Harvard’s admissions practices in September 2017. This investigation similarly concerns Harvard’s use of race as a factor in its admissions process.

Insurance Coverage Dispute

Not surprisingly, Harvard has incurred enormous expenses as a result of the long-running litigation as well as the federal investigation. These costs included attorney’s fees, discovery costs, and expert witness fees.

Harvard was covered on a primary basis by an Educational Institution Risk Protector liability insurance policy through insurer National Union Fire Insurance Company of Pittsburgh, PA, for the policy period of November 1, 2014, to November 1, 2015, (Primary Policy). The Primary Policy had a limit of $25 million and a retention/deductible of $2.5 million. Defense costs in excess of the Primary Policy’s limits were covered by an excess policy through Zurich covering the same policy period of November 1, 2014, to November 1, 2015 (Excess Policy). The Excess Policy has an aggregate limit of liability of $15 million.

Harvard has already incurred defense costs in excess of its Primary Policy’s limits. Those costs will only increase further as the underlying litigation proceeds. Zurich denied coverage under the Excess Policy, claiming that Harvard failed to provide timely notice of the underlying claim. Following the denial, on September 17, 2021, Harvard sued Zurich seeking a declaratory judgment that it was entitled to coverage under the Excess Policy.

The Excess Policy is a “claims-made-and-reported policy,” which covered claims: (1) made during the Excess Policy period of November 1, 2014, to November 1, 2015, and (2) reported in writing to Zurich no later than 90 days after the end of the Excess Policy period, or no later than 90 days after November 1, 2015. In other words, Harvard was required to notify Zurich in writing of any claim no later than January 30, 2016, which was 90 days after expiration of the Excess Policy.

Harvard did not notify Zurich of the underlying claim until May 23, 2017, more than 16 months after the notification deadline. However, Harvard argued that Zurich had constructive knowledge of Harvard’s underlying claim given the amount of national media coverage that the Students for Fair Admissions case had received. Harvard also argued that Zurich even had actual knowledge of the underlying claim based on internal Zurich documentation acquired during discovery that showed that Zurich was aware of the Students for Fair Admissions lawsuit before May 23, 2017.

The Court’s Decision

Judge Burroughs — the same judge who ruled in favor of Harvard in the underlying litigation —granted Zurich’s motion for summary judgment on November 2, 2022.

The court noted at the outset that the parties had no dispute that Harvard did not give Zurich notice of the relevant claim until May 23, 2017, which was “well past the deadline.” (It should be noted that Harvard did timely submit a claim under the Primary Policy, but not under the Excess Policy).

The court then reviewed applicable Massachusetts law, which provides 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.” The court noted that regarding claims-made policies, notice to the insurer within the policy period is “of the essence in determining whether coverage exists.”

Notably, Judge Burroughs reasoned that neither lack of prejudice to the insurer nor the insurer’s actual or constructive knowledge of a claim is enough to overcome the formal notice requirement. Put differently, whether an insurer could cover a claim, and whether an insurer actually knew about the claim (or reasonably should have known about the claim) is irrelevant to the coverage analysis.

In light of those standards, and because an unambiguous insurance policy must be applied as written, the court held that Harvard’s “failure to satisfy a condition precedent vitiates coverage.”

The Takeaway

Undoubtedly, this insurance coverage dispute will not attract nearly as much attention as the underlying affirmative action litigation pending before the Supreme Court. Yet it nevertheless represents a stark reminder for policyholders. In claims-made-and-reported policies, deadlines matter. Policyholders must timely notify their carriers in the manner and within the deadlines provided. Reliance on concepts such as constructive notice — the notion that a carrier “should have known” about a claim through news media or other sources — will not be enough.

Even Harvard makes mistakes.