On October 25, 2023, the President and Fellows of Harvard College (“Harvard”) filed a lawsuit alleging its insurance broker, Marsh USA INC. (Marsh”) caused Harvard to lose $15 million in excess coverage under a claims-made policy by Marsh failing to timely report a 2014 discrimination lawsuit to the excess carrier.
Harvard engaged Marsh to serve as its insurance broker and to provide insurance claim-related services relating to the 2014-2015 E&O insurance program placed by Marsh, including a $25 million primary policy with AIG and a $15 million first layer excess follow-form policy with Zurich American Insurance (“Zurich”).
According to Harvard’s complaint, Marsh undertook the contractual obligation to “prepare loss notices to insurers and notify insurers of claims” and a duty to perform its duties in a professional manner that accorded with the applicable standard of care for insurance brokers.
Supposedly, notwithstanding Marsh’s contractual and professional obligation to “prepare loss notices to insurers and notify insurers of claims,” Marsh failed to provide notice of a major claim to certain of Harvard’s excess E&O insurers, including Zurich. The result was the denial of coverage of a major claim by Zurich on the failure of Harvard to provide notice as required under Zurich’s policy.
Specifically, Harvard’s lawsuit claims Marsh breached its obligations to Harvard by failing to timely report the 2014 lawsuit, Students for Fair Admissions, Inc. v. President and Fellows of Harvard College (“Harvard”) (the “SFFA Action”), to Zurich and other excess insurers under the excess errors and omissions (“E&O”) program that Marsh had placed with these insurers.
The Harvard-Marsh broker agreement on reporting claims and placing coverage
Marsh, like other national brokers, does not act as an independent agent under the American Agency System. Instead, it markets itself as an insurance broker, an agent of the insured, and not of the insurance company. As a broker, its sole duty is to represent the insured under the terms of an oral or express brokerage agreement.
On July 18, 2014, Marsh provided Harvard with a written broker agreement setting forth Marsh’s obligations as Harvard’s insurance broker and risk management consultant for several lines of coverage, including the E&O insurance program placed by Marsh.
The broker agreement included a provision that Marsh would, among other “Claims-Related Services:”
[P]repare loss notices to insurers and notify insurers of claims; provided that [Harvard’s] Marsh claims advocate is informed in writing by [Harvard] of the claim, with details of the claim, and Marsh has placed the applicable policies….”
Later in 2014, Marsh placed Harvard’s E&O insurance program, including a $25 million policy issued by National Union Fire Insurance Company of Pittsburgh, Pa. (“National Union” or “AIG”) (above a $2.5 million self-insured retention), and Zurich’s first-layer excess E&O insurance policy providing $15 million in coverage excess of AIG’s $25 million primary policy, with contemporaneous policy periods from November 1, 2014 to November 1, 2015.
Both policies in the first and second layers of Harvard’s E&O program were claims-made and reported policies requiring notice to each carrier separately within the policy period or within the 90-day extended reporting period following the policies’ expiration dates.
The Students for Fair Admissions lawsuit
On November 14, 2014, an affirmative action lawsuit was filed against Harvard by a group of Asian American students, identified as the Students for Fair Admissions (SFFA”)
On November 18, 2014, Harvard sent an email to Marsh regarding the SFFA Action, which attached a copy of the complaint. In that email, Harvard requested that Marsh report the matter to AIG and for Marsh to provide an analysis as to coverage for the claim.
Marsh reported the SFFA Action to the primary insurer, AIG, who accepted coverage of the claim and paid defense costs, fees, and expenses incurred by Harvard with respect to the SFFA Action up to its policy limit.
Late Notice to Zurich
Although Marsh continued to provide its broker and risk-management consultant services for Harvard, including in connection with the SFFA Action in 2014 and 2015, allegedly Marsh did not inform Harvard that it had not reported the SFFA Action to Zurich, nor did Marsh ever advise Harvard that notice should be provided to Zurich or other excess insurers.
Harvard claims that it did not discover Marsh’s failure to place Zurich on notice of the claim until May 2017, when it asked Marsh if Zurich should be updated on the status of the SFFA litigation.
Upon Harvard’s discovery of Marsh’s failure to report the SFFA Action to Zurich, Harvard immediately demanded that Marsh formally report the SFFA lawsuit to Zurich and all of Harvard’s other excess E&O insurers, which Marsh did by letter dated May 23, 2017.
By the time Harvard became aware of Marsh’s alleged error, the deadline for providing timely notice to Zurich had long passed, and it was too late for Harvard to cure the late notice.
By letter dated October 25, 2017, Zurich denied coverage for the SFFA Claim. The sole basis of Zurich’s denial was that Zurich had received late notice of the SFFA Claim.
Harvard sues Zurich after after AIG’s $25 million primary E&O limit exhausted
By 2021 Harvard’s legal costs for defending against the SFFA discrimination complaint and a related 2017 Department of Justice probe had just about exhausted Harvard’s primary insurer’s $25 million liability limit
In September 2021, Harvard sued Zurich for coverage under its $15 million excess policy.
In its suit, Harvard admitted in its suit that it did not report the 2014 discrimination claim until 2017, although the Zurich policy had a claims-made and reported provision requiring notice within ninety days of the policy expiration to Zurich the excess insurer of any claims made during the policy period.
Harvard argued in the United States District Court that the claims-made provision was immaterial because Zurich had knowledge of the SFFA claim and had suffered no prejudice by the late notice. The Federal Judge hearing the case ruled against Harvard. Agency Checklists wrote about that decision on November 15, 2022 in an article entitled, “Late Policy Notice To Zurich Leads To Harvard’s Loss Of $15 Million In Coverage.”
Harvard appealed the federal district court’s ruling in favor of its excess carrier to the First Circuit Court of Appeals. This Court, in a short sixteen-page August 9, 2023 decision, rejected Harvard’s appeal.
For a summary of the strict claims-made notice requirements that tripped up Harvard, please see the article published by Agency Checklists on August 15, 2023, “The Pitfall Of Late Notice: Harvard’s $15 Million Coverage Loss.”
Seventy-seven days after the First Circuit Court of Appeals rejected Harvard’s appeal of its suit against Zurich, Harvard filed its suit against its insurance broker, Marsh.
Harvard’s lawsuit alleges four counts of “Broker Malpractice
In its complaint, Harvard claims that Marsh breached its broker agreement with Harvard in failing to report the SFFA lawsuit to Zurich within the time allowed by the $15 million excess policy’s terms.
Harvard also claims Marsh failed to act with the reasonable care and diligence expected of an insurance broker. The university is seeking to recover damages from the denied excess insurance coverage and related legal costs stemming from Marsh’s alleged errors.
The complaint filed by Harvard against Marsh alleges four counts:
- Count I alleges “Broker Malpractice” as a Breach of the brokerage contract between Harvard and Marsh seeking to have the six-year contract statute of limitations apply.
- Count II seeks a declaratory judgment on the same allegations as Count I for Marsh’s alleged breach of its brokerage contract with Harvard.
- Count III alleges“Broker Malpractice” against Marsh as an error and omission tort claim based on Marsh, as Harvard’s insurance broker, assuming a duty to act in accordance with the standards of care applicable to professionals in the insurance brokerage industry, both nationally and in Massachusetts.”
- Count IV seeks a declaratory judgment on the same allegations as Count III for Marsh failing to act within the generally accepted standards of care in reporting a claim made against its client.
The damages claimed by Harvard against Marsh
In its lawsuit, Harvard claims that due to Marsh’s failure to notify Zurich, Harvard lost out on $15 million in excess coverage for which it had paid premiums and incurred significant legal costs unsuccessfully litigating Zurich’s denial of coverage.
As a result, it seeks:
- Judgment in an amount equivalent to all defense costs, fees, and expenses paid or to be paid by Harvard in connection with the SFFA Claim in excess of $27.5 million.
- A declaration that Marsh is liable to Harvard for all damages incurred by Harvard due to the lack of coverage and payment under the Zurich Policy and possibly other excess E&O policies with respect to the defense costs, fees, and expenses incurred or to be incurred by Harvard in connection with the SFFA Claim.
- The attorneys’ fees incurred in the coverage litigation with Zurich.
- Costs, attorneys’ fees, and expenses incurred by Harvard for this action.
- Prejudgment, post-judgment, and interest as provided by law.
My thoughts on Harvard’s chances against Marsh
Out of the three suits involving Harvard over its admissions policies and its insurance coverage, Harvard has already lost two: The SFFA admissions policy suit in the United States Supreme Court and the $15 million coverage suit against Zurich Insurance in the First Circuit Court of Appeals. The third suit against Marsh over its failure give Harvard’s excess insurer Zurich Insurance timely notice under its claims-made excess policy might unfortunately give Harvard a hat trick of losses.
On its face, the suit states a seemingly valid cause of action if it had been brought earlier. The allegations of Counts III and IV, based on Marsh’s failure to notify Zuirch as violating the standard of care for insurance brokers undertaking to report claims seem problematical because of the three-year tort statute of limitations in Massachusetts. In this case, Harvard may have a very difficult time explaining how it did not know or should not have known as of May 2017, when Marsh advised it had not notified Zurich, that it had a cause of action against Marsh in tort for negligence.
Once Harvard knew about the late notice to Zurich the tort statute of limitations began to run. Under that scenario, after May 2020, Harvard’s claims against Marsh under Counts III and IV became stale and dismissible.
The claims stated in Counts I and II stand on a different footing. They are both brought in contract based on the broker agreement with Marsh. The contract statute of limitations is six years.
In Massachusetts, as a general rule, the contract statute of limitations begins to run as of the date the contract is breached. In this case, that date would have been the last day Marsh could have notified Zurich of the SFFA lawsuit, which was February 1, 2016, 90 after the expiration of the 2014-2015 policy on November 1, 2015, and the 90-day post-expiration “discovery period” for reporting claims.
Under this strict rule, Harvard’s cause of action would have expired on May 18, 2022, based on the six-year statute of limitations and 106 days the Supreme Judicial Court allowed for court closure during the COVID pandemic
The general rule of contract law does have an exception that tolls the statute of limitations if a plaintiff is not on notice that they have a claim. In this case, the Court might apply the “discovery rule,” which provides that regardless of the actual date of the breach, Harvard’s cause of action would not accrue until Harvard discovered, or reasonably should have discovered, that Marsh’s reporting failure may have caused it injury.
In that case, the six-year statute of limitations would have begun to run against Harvard as of May 2017 and expired in August 2023 with the 106 days added by the COVID pandemic court closures.
Harvard’s Tolling Agreement with Marsh extending the statute of limitations
Harvard may have avoided the expiration of the statute of limitations for its contract claims in August 2023, by entering into a Tolling Agreement, effective April 28, 2023, on May 1, 2023, tolling “any and all claims [Harvard] may have against Marsh in connection with the SFFA Litigation” for 180 days.”
This Tolling Agreement lasted, according to Haravard’s complaint “until (but not including) October 25, 2023.”
Harvard filed its complaint against Marsh on the 180th day of the Tolling Agreement, October 25, 2023.
The question of when Harvard knew or should have known that Marsh had not notified Zurich seems to be a major, if not the major, issue in determining whether Harvard has a shot to recover from Marsh what it would have been paid by Zurich if Zurich had received timely notice of the SFFA claim.
The case has other factual issues that may affect the outcome of the lawsuit
In addition to the statute of limitations issues, there are factual issues not discussed in this short article that could be determinative. For example, Harvard’s complaint notes that Marsh has claimed that it was instructed not to notify Zurich. If proven, that fact alone would likely resolve Harvard’s claim in favor of Marsh.
Agency Checklists will keep you posted.
Insurance Coverage Legal Expert/Co-Founder & Publisher of Agency Checklists
Over the course of my legal career, I have argued a number of cases in the Massachusetts Supreme Judicial Court as well as helped agents, insurance companies, and lawmakers alike with the complexities and idiosyncrasies of insurance law in the Commonwealth.
Connect with me directly, by calling me at 617-598-3801.