In Massachusetts, claims-made insurance policies mandate insureds must strictly comply with a policy’s notice of claim provisions or lose their coverage. The consequences of late notice are severe for policyholders who are tardy in reporting. For example, Agency Checklists recently reported that Harvard University lost $15 million in coverage for failing to report a major claim timely. See Agency Checklists’ August 15, 2023 article, “The Pitfall Of Late Notice: Harvard’s $15 Million Coverage Loss.”
Now, another non-profit has lost coverage for late reporting under a claims-made policy. In Nahant Preservation Trust, Inc. v. Mount Vernon Fire Ins. Co., the First Circuit Court of Appeals affirmed a federal district court decision finding the insured lost all coverage because it failed to report a claim made during the policy, before or within sixty days of the expiration date of its insurance policy.
The Massachusetts legal decisions concerning strict notice under claims-made and reported liability policies have become a trap for the unwary about which independent agents may wish to educate their clients.
Nahant Preservation Trust, Inc. (“Nahant”) is a not-for-profit organization dedicated to preserving open space in Nahant that became embroiled in lawsuits with Northeastern University over the University’s land use plans.
In 1967, Northeastern acquired 20 acres on East Point in Nahant, at no cost, via a deed expressly reserving public access over an easement to the remaining 8 acres. The Town later obtained the remaining acres as the Lodge Park conservation land.
Northeastern dedicated around 12.5 acres of East Point land as an ecological preserve for passive recreation and open space. However, in 2018, Northeastern announced plans to expand its Marine Science Center within the ecological preserve by constructing a 55,000-square-foot building and parking facilities.
In June 2019, Northeastern began clear-cutting trees to create an access road through habitat areas.
Nahant objected, claiming the ecological preserve was unbuildable public natural resources land protected under Article 97 of the Massachusetts Constitution. Protected land under Article 97 only has use for conservation and passive recreation, absent approval by two-thirds of the state legislature.
When the Nahant Trust gave Northeastern a statutory 21-day notice of its intent to sue to stop the project for an environmental violation, Northeastern preemptively filed a suit against the Nahant Trust seeking a declaratory judgment regarding whether Article 97 applied to the land. The Nahant Trust answered the suit and filed a cross-claim against Northeastern to enforce land use regulations and obtain injunctive relief prohibiting the development.
Nahant’s claims-made policies with the USLI’s Group
The Nahant Trust purchased and renewed between June 19, 2018, and June 19, 2021, four non-profit management liability policies with coverage periods for each policy ending on June 19. The first policy expired on June 19, 2019, the second on June 19, 2020, the third on June 19, 2021, and the fourth and last on June 19, 2022.
The policies were issued by the Mount Vernon Fire Insurance Company, a part of the United States Liability Insurance Group (“USLI”).
All the policies were claims-made policies with the standard notice provisions requiring the Nahant Trust to provide written notice to USLI of any claim no later than 60 days after the expiration of the policy period in which a claim was first made.
On August 9, 2019, during the second policy’s period of coverage from June 19, 2019, to June 19, 2020, Northeastern University filed suit against the Nahant Trust in the Massachusetts Superior Court, alleging the Nahant Trust was interfering with Northeastern’s plans to expand its Marine Science Center.
Northeastern and the Nahant Trust litigated their lawsuit and cross-claim for almost two years before the Nahant Trust notified USLI on July 27, 2021, about the claim, requesting defense and indemnity. The notice given missed the policy expiration date and the sixty-day grace period for reporting claims made during the second policy period by eleven months and nine days.
USLI denied the Nahant Trust any coverage based on it having failed to notify USLI as required under the policy applicable to when Northeastern’s claim was made against the Nahant Trust.
The Nahant Trust’s Lawsuit Against USLI claiming continuous reporting under the four policies
Nahant did not accept USLI coverage denial as the final word. The Nahant Trust brought suit against USLI in state court, seeking a declaration that the insurer was obligated to provide coverage for defense costs and indemnification. USLI removed the case to federal court and filed a motion to dismiss, arguing the Nahant Trust’s late notice precluded coverage.
In opposing dismissal, the Nahant Trust argued that an Exclusion Amendment in the 2019 policy and two subsequent policies altered the meaning of “effective date” and extended the notice period. The Exclusion Amendment modified the prior pending litigation exclusion to exclude any claims related to matters pending before the policy’s effective date. However, it contained language stating that for renewals in a continuous series of policies, the effective date “will mean” the first policy’s effective date.
Nahant argued this Exclusion Amendment changed the effective date for purposes of the entire policy rather than just that exclusion. Under this interpretation, the notice period would extend through the 2021 policy expiration (fourth policy) rather than the 2019 policy expiration (second policy). USLI maintained the Exclusion Amendment provision was limited in scope to the exclusion itself and did not generally redefine the effective date or expand the notice period.
District Court’s Decision
The Federal District Court sided entirely with USLI in adopting a plain-meaning interpretation of the Exclusion Amendment. It found the Nahant Trust’s reading to be wholly unreasonable and at odds with the narrow purpose of an exclusion to limit rather than expand coverage. The court determined the Exclusion Amendment was unambiguous and only changed the meaning of the effective date for purposes of that exclusion.
Since the Exclusion Amendment expressly stated all other policy terms remained unchanged, the court held the Nahant Trust’s interpretation would improperly render this language meaningless. The court dismissed the Nahant Trust’s declaratory judgment claim with prejudice based on the late notice barring coverage under the 2019 (second) policy.
Nahant filed a timely appeal to the First Circuit Court of Appeals.
First Circuit Affirms Dismissal
The First Circuit affirmed the district court’s dismissal of the Nahant Trust’s coverage claim due to untimely notice. Its analysis echoed the lower court’s rationale that the Nahant Trust’s interpretation of the Exclusion Amendment was implausible, at best. The court emphasized exclusion provisions are intended to restrict coverage and must be narrowly construed.
Here, the First Circuit found the Nahant Trust sought to stand this principle on its head by reading the exclusion to dramatically expand coverage through reforming the entire policy structure. The First Circuit held only USLI’s limited reading of the Exclusion Amendment was reasonable when interpreting the policy as a whole.
The Court found the Exclusion Amendment unambiguously indicated no other policy terms were changed. Further, adopting the Nahant Trust’s continually expanding notice period would undermine the core purpose of claims-made policies to encourage prompt notice.
Applying established Massachusetts law, the court held the Nahant Trust’s indisputably late notice precluded coverage regardless of prejudice to the insurer. It affirmed the dismissal of the Nahant Trust’s claims, notching another win for insurers enforcing the Massachusetts rule mandating insureds’ strict compliance with the claim reporting requirements found in all claims-made policies.
The Nahant Trust and Harvard University decisions demonstrate that insureds face an uphill battle in trying to salvage coverage under a claims-made policy if they have missed reporting a claim within the time allowed in the policy. Massachusetts legal precedent treats late notice under claims-made policies as an incurable breach.
For claims-made policies, the notice clock clock starts ticking when a claim is first made against the insured. Delayed notice after expiration, even if only by several days, will likely prove fatal to coverage.