WASHINGTON — As Harvard prepares to defend its race-conscious admissions program at the Supreme Court this month, a federal judge in Boston is considering a related dispute arising from a fumbled insurance filing, one that could cost the university $15 million.
Harvard failed to file a timely formal claim with one of its insurance companies for its expenses in defending the lawsuit challenging its admissions policies. That company, Zurich American Insurance, refused to pay, and Harvard sued. In the process, the university disclosed that its legal fees and expenses in the admissions lawsuit and a related Justice Department investigation had topped $27 million.
“One of the nation’s top universities is apparently not great about doing its homework,” said David Lat, a legal commentator.
Days after Students for Fair Admissions sued Harvard in 2014, arguing that its practice of taking account of race in its undergraduate admissions decisions was unlawful and harmed Asian American applicants, the university formally notified its primary insurance carrier to seek payment of its defense costs. That policy had a $25 million limit, after Harvard paid $2.5 million.
But Harvard did not alert Zurich, its excess insurer, which was meant to cover the next $15 million, until long after the policy’s deadline had passed.
That additional money is at issue in the case before the federal judge in Boston.
“Somebody seriously messed up,” said Tom Baker, a law professor at the University of Pennsylvania. “I teach about this stuff. One of the things you teach people about claims-made policies is that you’ve got to provide notice early and often.”
Students for Fair Admissions filed a separate lawsuit in 2014 challenging the admissions program at the University of North Carolina. Both cases went to trial, and Harvard and UNC both prevailed. After Harvard won in an appeals court and while UNC’s appeal was pending, the Supreme Court agreed to hear both cases. They will be argued Oct. 31.
Students for Fair Admissions was founded by Edward Blum, a conservative legal entrepreneur who has pushed several important cases on race and voting to the Supreme Court.
According to tax filings, Blum’s group has spent less than $8 million on the cases against Harvard and U.N.C.
“I am the low-cost, high-volume producer in the public interest legal space,” Blum said in an interview. “No bricks, no mortar, no employees.
“I pay myself $48,000 a year for this mishegoss,” he said, using the Yiddish word for craziness.
Public information about the sources of the money used to finance the lawsuits filed by Students for Fair Admissions is limited, and Blum would describe the group’s donors only in general terms.
“Most of our funding has come from a dozen high-net-worth individuals and probably a dozen conservative foundations,” he said. “We have received over 5,000 individual contributions, from $5 to sometimes up to $1,000. There are some foundations that have disclosed that they have supported these lawsuits publicly. The bulk of them I’m not going to disclose.”
Blum confirmed reports in tax filings that his group had received $1.5 million in donations from Donors Trust, $500,000 from Searle Freedom Trust and $250,000 from the Sarah Scaife Foundation. All are supporters of conservative or libertarian causes.
UNC’s own litigation expenses have exceeded $24 million as of July, according to a response to a public records request from the James G. Martin Center for Academic Renewal, a nonprofit group that says it seeks to broaden the diversity of ideas taught at universities.
“No state-appropriated or tuition dollars are being used,” UNC told the center.
Asked for clarification by The New York Times, the university issued a cryptic statement: “While all institutions receive state appropriations and tuition categorized as general funds, they also rely on other funding sources to support operations, including grants, contracts, donor funds and auxiliary enterprises.”
Legal experts said the universities’ legal fees were both substantial and unsurprising.
“Let’s be real: They are really large numbers,” Baker said. “But in an era when lawyers at top law firms are billing over $1,000 an hour without even blinking, it doesn’t take a lot to get to those kinds of numbers in a hard-fought case.”
Both of Harvard’s insurance policies covered claims made against it during the one-year period ending in November 2015, so long as they were reported to the insurers by January 2016. The Zurich policy said notice to the primary insurer did not suffice.
Harvard did not provide formal notice to Zurich until May 2017, more than a year after the deadline.
In response, Harvard’s lawyers argued that Zurich “surely knew” about the affirmative-action suit “in the year after it was filed, especially given the significant, ongoing attention that the suit received in national and local news” and Zurich’s own underwriting activities.
They added, “The notice requirement is not an escape hatch for insurance companies to avoid liability to policyholders due to technical noncompliance.”
Zurich’s lawyers said that argument was “creative yet specious” and “outlandish.”
A Harvard spokesperson said, “We do not have anything to add here, beyond our legal filings.”
A Zurich spokesperson said, “It is not Zurich’s practice to comment on litigation so we are unable to discuss the case with you.”
Baker said Zurich’s refusal to pay was unattractive but legally plausible.
“It seems like the worst thing insurance companies are always accused of, which is taking advantage of technicalities that are meaningless,” he said. “But the case law on strictly applying claims-made notice reporting rules means that I don’t blame Zurich for taking a run at it, and I wouldn’t count them out, either.”
Lat, author of Original Jurisdiction, a newsletter about the law and legal profession, went further.
“Insurance companies, especially insurance companies trying to avoid paying claims, aren’t very sympathetic,” he said. “But they’re entitled to get their contracts enforced as written, especially when the party on the other side is a sophisticated university with tons of lawyers and a $50 billion endowment.”
In Harvard’s dispute with its insurer, Lat said, real and fictional alumni, including the protagonist of “Legally Blonde,” would not bet on their alma mater.
“As a Harvard alum myself, it pains me to say this, but this isn’t a complicated case,” he said. “You don’t need to be Elle Woods to see the university is probably going to lose.”
This article originally appeared in The New York Times.