EPL CORNER

A Massachusetts District Court recently ruled in favor of an excess insurer on the issue of whether an insured university provided timely notice of litigation, finding an excess insurer was not obligated to provide its limits towards the university’s defense.  

The court found the policy at issue was unambiguous in requiring notice of any claims within 90 days of the expiration of the policy. The university did not provide formal notice to the excess carrier until well over a year after this extended reporting period. The university’s argument focused on the lack of prejudice to the insurer, as well as the insurer’s actual or constructive knowledge of the litigation in asking the court to find the notice provision to be a “mere technicality.” The University also attempted to argue that by placing the primary insurer on notice, it fulfilled its obligations to the excess insurers.  

The court firmly disagreed with the university’s argument, finding the unambiguous terms of the insurance policy must be strictly enforced, and that prejudice or constructive notice were not relevant to the university’s obligations to provide timely notice under the policy. The court went on to state that "even in cases where insureds directly provided information about a claim to an insurer's underwriters — not the case here — courts have still held that this was insufficient to be considered notice of a claim as required by the strict provisions of a claims-made policy.” 

The Fourth Circuit Court of Appeals recently upheld the finding that a lawsuit commenced by the former CFO of a contracting company was not an “Employment Practices Wrongful Act” as defined by the company’s employment practice liability (“EPL”) policy. 

The underlying suit arose when the company’s majority shareholder and sole director advised the CFO that the other directors would be forming a new company without the CFO. The CFO then sent a letter to the new company asserting shareholder violations and potential breaches of fiduciary duties in connection with cutting him out of the new venture, devaluing the shares, and failure to comply with contractual obligations. Soon thereafter, the CFO was terminated for cause. The CFO then filed suit against the new company, its new shareholders, and the original shareholders, which was eventually settled. Neither the suit nor the earlier letter contained allegations of unlawful termination. 

Coverage litigation ensued when the EPL insurer declined to defend and indemnify the company in the litigation. The Fourth Circuit, in affirming a lower court's decision, held there were no allegations of wrongful discharge in either the initial letter nor the complaint filed by the CFO, noting the company was not permitted to infer or add a new cause of action for the court to review. Furthermore, the allegations of breach of shareholder agreement, shareholder oppression, and breach of fiduciary duty failed to trigger coverage under the EPL policy because neither the demand nor the complaint met the policy’s definition of “Employment Practices Wrongful Act.” As such, the insurer had no duty to defend or indemnify the company.