LATE NOTICE PRECLUDES COVERAGE FOR EEOC CHARGE UNDER EPL POLICY

In the underlying matter, an employee of a construction company ended an affair with the company’s president. After being dumped, the president sent the employee an email regarding her purported “resignation,” and over the next few months, the two exchanged multiple emails about the employee’s departure from the company.

The employee ultimately sent a list of proposed changes to a draft severance agreement, which provided for a payout in exchange for a release of claims against the company, including those arising under Title VII of the Civil Rights Act of 1964. Weeks later, the employee retained a lawyer, who notified the company they were “in the process of preparing a suit” with respect to the employee’s claims against the president.

During the initial severance negotiations, the president renewed the company’s employment practices liability (“EPL”) insurance, doubling the policy’s limit. After the new policy was incepted, the company then notified its insurer of the employee’s allegations against the president. The insurer denied coverage for the matter, noting the claim was first made during the prior policy period and was not timely reported. Coverage litigation ensued.

The EPL policy provided coverage on a claims-made-and-reported basis, meaning in order for coverage to apply, a claim must be both made against the insured and reported to the insurer during the same policy period. The policy defined “Claim” as “a written demand received by the insured alleging damages or the filing of a ‘suit’, or any administrative proceeding including but not limited to the Equal Employment Opportunity Commission, or any other state or federal agency or authority with jurisdiction over [the insured].” The policy further provided that “Insured Event” meant any “actual or alleged acts of ‘discrimination,’ ‘harassment,’ and/or ‘inappropriate employment conduct’ by an Insured against an ‘employee.’”

Noting that the policy’s definition of “Claim” was ambiguous, the court agreed with the company that the duty to report a “Claim” only arose when a demand alleged damages relating to an “Insured Event.” The court, nevertheless, sided with the insurer in finding that a “Claim” related to an “Insured Event” was first made during the prior policy, either when the employee sent revisions to the separation agreement or when the employee’s attorney contacted the company about a contemplated lawsuit.

The Takeaway

Under claims-made-and-reported policies, timely reporting of claims and circumstances is a condition precedent to coverage, and as such, is fundamental to securing coverage and avoiding litigation like that in the case at hand. Insureds cannot rely on the notice-prejudice rule to refute an insurer’s late notice denial by showing the insurer was not materially prejudiced by the untimely notice.

PRIOR ACTS EXCLUSION PRECLUDES COVERAGE FOR JUDGMENT IN PAY DISCRIMINATION SUIT

Knox, et al. v. Ironshore Indem. Inc., No. 21-3032 (2nd Cir. Jun. 22, 2022)

In the underlying action, former employees of a now-bankrupt clothing retailer obtained a judgment against the company in a pay discrimination suit involving a clothing allowance that was provided to male sales employees but not to female sales employees.

The retailer’s insurance company had denied coverage for the suit, since the policy did not provide coverage for acts that first occurred prior to a date indicated in the policy. The employer filed for bankruptcy protection and thereafter, the former employees filed suit against the insurance company in an attempt to collect the amount of the judgment that had not been paid by the employer.

The policy provided that “the Insurer shall not be liable to make any payment for Loss in connection with any Claim for any Wrongful Act which occurred prior to [the cut-off date]. Loss arising out of the same Wrongful Act or Related Wrongful Acts shall be deemed to arise from the first such Wrongful Act.” Furthermore, “Related Wrongful Acts,” were defined as those “which are the same, related or continuous, or Wrongful Acts which arise from a common nucleus of facts.”

The retailer instituted the clothing practice in question several years prior to the cut-off date in the policy, and maintained it after that date. Therefore, the court ruled that the policy excluded coverage for the judgment since the retailer’s practice before and after the cut-off date was “the same, related or continuous, under any reasonable interpretation of that phrase.” Furthermore, the mere fact that the employer introduced a discount offer to female employees after the cut-off date “does not alter that conclusion because nothing changed about the allowance provided to male employees and … the discount offered to female employees was not comparable in value to the male clothing allowance.”

U.S. ANTI-RETALIATION LAWS AFFORD NO PROTECTION FOR FOREIGN JURISDICTIONS

Daramola v. Oracle Am., Inc., et al., No. 19-cv-07910-JD (N.D. Cal. Jun. 7, 2022)

An employee of a software company who lived and worked in Canada resigned from his position and subsequently brought a whistleblower retaliation complaint against his former employer, contending he was wrongfully discharged for refusing to participate in an alleged pattern of racketeering.

The former employee attempted to avail himself of the Sarbanes-Oxley Act (“SOX”), the Dodd–Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”), as well as State Labor Laws of California, by virtue of his systemic contacts with his former employer’s California office.

The court dismissed the action, noting that use of his employer’s servers and online resources in California did not amount to a connection with the state and that the key events occurred outside of California. In coming to its decision regarding the lack of any meaningful connection between the individual’s employment and the State of California, the court considered that the employee lived in Canada, provided a resignation to his Canadian employer, did not assert that he worked or was paid in California, and did not bring an adverse employment action in California, or anything else that might connect his employment claims to the state. Of note, the California company was the parent of the Canadian entity, but under applicable law, parent companies and subsidiaries are treated distinctly. Finally, as the claim was based outside of the United States, neither SOX nor Dodd-Frank nor California labor law was applicable to his case.

EPL CORNER

LATE NOTICE PRECLUDES COVERAGE FOR SEXUAL HARASSMENT CLAIM UNDER EPL POLICY