A crucial part of any construction business is a solid insurance policy. In today’s highly litigious society, it’s not a matter of if, it’s just a matter of when an injured worker lawyers-up and starts a sequence of events that results in you becoming embroiled in a lawsuit. This fact is not limited to the personal injury context: where there is a claim of defective work and a suit against a general contractor, that GC typically sees to it that everyone who touched the building is also brought into court. While there are other situations, these are two of the more likely scenarios where you will have to reach out to your insurance carrier to assign counsel and ultimately handle the loss. However, a court, in President and Fellows of Harvard College v Zurich American Insurance Company, reminds us that by failing to comply with notice provisions of your policy, you can forfeit coverage that would have otherwise covered the loss—coverage that you paid for.
Harvard University is the subject of a lawsuit brought by a group calling themselves Students for Fair Admissions, which seeks to challenge Harvard’s policy of affirmative action favoring minority candidates for admission (and, by seeking to litigate this through the US Supreme Court, other schools’ polices, as well). While that lawsuit raises issues of greater constitutional law not relevant to our discussion, as concerns us Harvard had the foresight to obtain policies of insurance which would cover its defense costs in the affirmative action litigation. However, these policies had requirements that required Harvard to notify the carrier as soon as it had knowledge of the lawsuit, but in no event later than 90 days after the end of the policy term. Harvard notified its primary carrier in accordance with these timetables, but neglected to notify its excess carrier, Zurich American Insurance Co., which ultimately disclaimed coverage on this basis.
Harvard sued Zurich for breaching the policy by disclaiming coverage, arguing that as Zurich had actual knowledge of this extremely high profile litigation (which was just argued to the US Supreme Court last October, and which will be decided this spring), the notice requirement was actually met. In support of its motion for summary judgment, Zurich argued that notwithstanding any actual notice of the lawsuit through the high profile media coverage, as the policy required specific notice, and as Harvard failed to provide that specific notice, it breached the policy itself, thus removing Zurich’s obligation to provide any coverage.
The court granted Zurich’s motion, crediting its argument that regardless of any fortuitous actual knowledge that it may have had as a result of the media coverage, as the policy required specific notice—which was undisputedly not provided—Zurich had no obligation to provide any coverage under the policy. The court went on to address several other arguments relating to the “claims made” nature of this particular policy, but returned to the subject of prejudice, holding that as the policy language regarding notice was clear, it did not have to show that it suffered prejudice as a result of the failure to give such notice. Accordingly, the court dismissed Harvard’s lawsuit, leaving it to pay the defense costs of the affirmative action lawsuit itself.
Harvard University is widely reputed to produce the best and brightest minds in our nation. However, even such minds can fail to appreciate the terms of a complicated insurance policy, and that courts will enforce those terms, as written. While there is somewhat of a reprieve in New York for personal injury actions, with the operative statute requiring a carrier who argues that it did not receive timely notice also show that it was actually prejudiced by the failure to notify, it does not take much to show such prejudice. Accordingly, contractors would be well advised to be smarter than those at Harvard and provide any insurance carriers—including those which you may not initially think may afford coverage, as contractors may have more than one type of policy—with timely notice of any claim (or potential claim) as soon as they learn about it. By giving such timely notice, not only are you complying with the policy, you are also removing any potential claim that the carrier was somehow prejudiced, and ensuring that you receive the coverage you paid for.