beyond epli: coverage issues for employment-related claims...2. personal injury a. in umbrella...

Vol. 1, #5 January 2003

MEALEY'S LITIGATION REPORT: Employer Liability Insurance

© Copyright 2003 LexisNexis, Division of Reed Elsevier Inc., King of Prussia, PA � www.mealeys.com 1

Commentary

Beyond EPLI: Coverage Issues ForEmployment-Related Claims

ByBrian S. RudickandWilliam D. Wickard

[Editor’s Note: Brian S. Rudick and William D. Wickard are attorneys in the Pittsburghoffice of Kirkpatrick & Lockhart LLP, Henry W. Oliver Building, 535 Smithfield Street,Pittsburgh, PA 15222 (412-355-6500), where they litigate on behalf of and counsel policy-holders concerning insurance coverage matters. The authors would like to acknowledge theefforts of James E. Scheuermann and Julie S. Greenberg, who are also attorneys in the Pitts-burgh office of Kirkpatrick & Lockhart LLP, and who authored an earlier article entitledLatest Developments and Principal Issues in Coverage for Employment-Related Claims, pre-sented at Mealey’s Sexual Harassment Litigation and Insurance Coverage Conference in October1998, upon which this commentary is based.

These materials reflect the views of the authors as to important issues with respect to insur-ance coverage for employment-related claims, but do not necessarily reflect their views as tothe resolution of these issues. Moreover, these materials do not necessarily reflect the viewsof any client of Kirkpatrick & Lockhart LLP or the firm itself. Copyright 2002 Kirkpatrick& Lockhart LLP. Replies to this commentary are welcome.]

I. Comprehensive (Or Commercial) General Liability (“CGL”) Policies

A. Coverage Grants

1. Bodily Injury

a. “Bodily injury” often is defined as:

“bodily injury, sickness or disease sustained by anyperson which occurs during the policy period, in-cluding death at any time resulting therefrom.”Miller, S. and P. LeFebvre, Miller’s Standard Insur-ance Policies Annotated I 454.609 (4th Ed. 1995).

b. Key Issue: Whether alleged emotional distress orother mental injuries are within bodily injury cov-erage when not accompanied by physical manifes-tations or symptoms.




c. Cases cited by insurers finding no coverage: Smithv. Animal Urgent Care, Inc., 542 S.E.2d 827 (W.Va.2000) (no coverage for purely mental or emotionalharm that arises from a claim of sexual harassment);SL Indus., Inc. v. American Motorists Ins. Co., 607A.2d 1266 (N.J. 1992) (purely emotional injuries notgenerally covered, but “bodily injury” is an ambiguousterm requiring case-by-case analysis); Allstate Ins. Co.v. Diamant, 518 N.E.2d 1154 (Mass. 1988) (no cov-erage for emotional injuries).

d. Cases cited by policyholders finding coverage:Lavanant v. General Accident Ins. Co. of Am., 595N.E.2d 819 (N.Y. 1992) (finding coverage under CGLbodily injury coverage for landlord’s liabilities to ten-ants for purely emotional injuries sustained as a re-sult of ceiling collapse); State Farm Mut. Auto. Ins.Co. v. Ramsey, 374 S.E.2d 896 (S.C. 1988) (negli-gent infliction of emotional distress is bodily injurywhich is covered under standard CGL coverage). Seealso Maine Bonding & Cas. Co. v. Douglas Dynam-ics, Inc., 594 A.2d 1079 (Me. 1996) (finding duty todefend based on allegation of emotional distress de-spite fact that Maine law requires accompanyingphysical symptoms because plaintiff may prove physi-cal symptoms at trial).

e. General Accident Ins. Co. of Am. v. Gastineau, 990F. Supp. 631 (S.D. Ind. 1998): Policyholder soughtcoverage under CGL policy for defense costs incurredin defending sexual discrimination action brought byformer employee. Insurer denied coverage on groundsof lack of “bodily injury” as defined in the policyand on the grounds of the employment exclusion.Held: Emotional and psychological damage allegedin the complaint were sufficient to satisfy bodily injuryrequirement in the CGL policy thereby triggeringinsurer’s duty to defend. “[W]e believe that bodilycontact is sufficiently inherent in hostile work envi-ronment claims that, without conducting any rea-sonable investigation into Gastineau’s allegations,GAIC’s duty to defend Fleet was triggered.”

2. Personal Injury

a. In umbrella policies “personal injury” may expresslyprovide coverage for mental injury, defamation, dis-crimination or humiliation. Accordingly, many courtshave found coverage for defense costs or liabilitiesunder the personal injury coverage.




b. St. Paul Guardian Ins. Co. v. Centrum GS Ltd, 283F.3d 709 (5th Cir. 2002): Former employee suedemployer (a building owner and manager) allegingwrongful termination, intentional infliction of emo-tional distress, libel, slander, invasion of privacy,fraud, negligence and breach of contract. Formeremployee alleged that subsequent to his termination,employer circulated “Wanted Posters” to the gen-eral public, including tenants and customers of thebuilding, which requested anyone who saw the formeremployee in the building to call security. Employersought coverage under personal injury provision ofCGL policy that provided coverage for damages forpersonal injuries that are the result of the employer’sbusiness activities and are caused by a personal in-jury offense. The trial court concluded CGL insurerhad no duty to defend or indemnify under personalinjury provisions of the policy because alleged dam-ages from personal injury offenses did not arise fromthe policyholder’s business activities. Held: Theformer employee’s injuries were caused by thepolicyholder’s business activities and the wrongfultermination claim fell under “personal injury” cov-erage. The policyholders had a duty to protect theirtenants and real estate and circulating “WantedPosters” was warning of a perceived risk. Accord-ingly, the court concluded the policyholder’s actionswere consistent with its business activities.

c. McCormack Baron Mgmt. Servs., Inc. v. AmericanGuar. & Liab. Ins. Co., 989 S.W.2d 168 (Mo. 1999):A security agency terminated a security guard afterhis supervisor provided the property manager witha letter that the security guard had authored (com-plaining that a co-employee was coming to workintoxicated). The security guard filed a multi-countcomplaint against the security agency and the prop-erty manager alleging, inter alia, tortious interferencewith contract. The property manager’s CGL insurerdenied coverage and the trial court granted sum-mary judgment for the insurer. Held: The insurerwas obligated to defend the property manager inthe underlying action. The court concluded that theCGL policy’s personal injury coverage for an offensethat disparages a person’s services was not limitedto a cause of action of disparagement or injuriousfalsehood.




d. Golden Eagle Ins. Corp. v. Rocky Cola Café, Inc.,114 Cal. Rptr. 2d 16 (Cal. Ct. App. 2001) (findingcoverage for former employee’s defamation claimunder “personal injury” provision of a CGL policy);HS Servs., Inc. v. Nationwide Mut. Ins. Co., 109 F.3d642 (9th Cir. 1997) (finding coverage for post-em-ployment defamation of a former employee underCGL policy); Indiana Ins. Co. v. North VermillionCmty. Sch. Corp., 665 N.E.2d 630 (Ind. Ct. App.1996) (coverage for mental anguish and damage toreputation arising from wrongful termination under“personal injury” provision). See also Glen Lincoln,Inc. v. Zurich Ins. Co., No. 95-5621, 1999 WL 58587(E.D. Pa. Jan. 13, 1999) (insurer must defend poli-cyholder in underlying discrimination suit where CGLpolicy endorsement extended the definition of “per-sonal injury” to “include discrimination, which isnot deemed unlawful under state or federal law whichis committed by or at the direction of the namedinsured or any additional named insured”); Meluginv. Zurich Canada, 57 Cal. Rptr. 2d 781 (Cal. Ct.App. 1996) (insurer must defend policyholder inunderlying sexual discrimination suits where CGLpolicy provided coverage for discrimination “whereinsurance against same is not prohibited by law”and the discrimination was not necessarily “willful”under state law).

3. Property Damage

a. “Property damage” often is defined as:

“(1) physical injury to or destruction of tangibleproperty which occurs during the policy period, in-cluding the loss of use thereof at any time resultingtherefrom, or (2) loss of use of tangible property whichhas not been physically injured or destroyed pro-vided such loss of use is caused by an occurrenceduring the policy period.” Miller’s Policies I, supra,at 454.612.

b. Not often the subject of coverage disputes in em-ployment-related coverage litigation unless there isactual injury to or loss of tangible property, e.g.,destruction of personal property at work, slashingtires of automobile, etc. Some courts have held thateconomic losses alone may not constitute propertydamage because they usually do not involve physi-cal injury to tangible property. See, e.g., Lamar TruckPlaza, Inc. v. Sentry Ins., 757 P.2d 1143 (Colo. Ct.




App. 1988) (underlying claim of sexual harassmentwas purely economic and did not allege damage to,or loss of use of, tangible property).

4. Occurrence / Accident

a. “Occurrence” defined: “An accident, including con-tinuous and repeated exposure to conditions whichresults, during the policy period, in bodily injury orproperty damage neither expected nor intended bythe insured.” Trial and Insurance Counsel’s hand-book for the Commercial General Liability InsurancePolicy and Other Business-Related Insurance Policy,§ II-101B.

b. Cases cited by policyholders in favor of coverage:Intentional acts are occurrences or accidents as longas the resulting injury was not intended. SL Indus.,Inc. v. American Motorists Ins. Co., 607 A.2d 1266(N.J. 1992); United Servs. Auto. Ass’n v. Elitzky, 517A.2d 982 (Pa. Super. 1986). See also Missouri Prop.& Cas. Ins. Guar. Ass’n v. Petrolite Corp., 918 S.W.2d869 (Mo. Ct. App. 1996) (acts of intentional discrimi-nation were an “occurrence” as defined under thepolicy interpreted as a whole).

c. Cases cited by insurers in favor of no coverage: Somecourts have held that intentional acts are not oc-currences or accidents. See American Guar. & Liab.Ins. Co. v. Vista Med. Supply, 699 F. Supp. 787 (N.D.Cal. 1988).

d. North Bank v. Cincinnati Ins. Cos., 125 F. 3d 983(6th Cir. 1997): Employer sued insurer seeking re-imbursement for defense and settlement of an un-derlying employment discrimination suit. The dis-trict court granted summary judgment to the insurer,finding it was not obligated to defend the employerbecause the policy only covered an “‘occurrence’which unexpectedly or unintentionally resulted in‘personal injury’” and the underlying complaint al-leged intentional discrimination. The district courtalso relied on a policy provision that excluded cov-erage for personal injury arising out of intentionaldiscrimination. Held: The district court erred byfinding the insurer did not have a duty to defendthe employer. The Sixth Circuit U.S. Court of Ap-peals reversed the district court’s grant of summaryjudgment, finding that the umbrella policy containedan ambiguity that was to be construed against the




insurer. The court stated that a policy that includesa “‘definition of personal injury which includes in-tentional torts and [a] definition of ‘occurrence’ whichexcludes intentional torts’ [is] inconsistent and create[s]an ambiguity.” Accordingly, the court rejected theinsurer’s argument that “the policy eliminates cov-erage of intentional discrimination through its defi-nition of ‘occurrence.’”

5. Trigger Of Coverage

a. Historic CGL policies are generally “occurrence poli-cies” that provide coverage for injuries occurringwithin the policy period, regardless of when the claimis made against the policyholder.

b. Examples of trigger of coverage cases in the employ-ment-related coverage area include: Appalachian Ins.Co. v. Liberty Mut. Ins. Co., 676 F.2d 56 (3d Cir.1982) (finding that, under a single occurrence theory,injuries occurred immediately upon promulgation ofthe employer’s discriminatory employment policy) andIllinois Cent. R.R. Co. v. Accident & Cas. Co. ofWinterthur, 739 N.E.2d 1049 (Ill. App. Ct. 2000)(concluding that, under a multiple occurrence theory,the liability “policy in effect at the time an applica-tion was tendered by a would-be employee” wastriggered with respect to the employment discrimi-nation claim of that employee “because the ‘firsthappening of any material damage’ occurred at thetime the futile application was submitted”).

6. Duty To Defend

a. Duty to Defend: The majority rule provides thatthe insurer has a duty to defend the whole under-lying action where the underlying complaint allegesat least one potentially covered claim under the termsof the insurer’s policy. Insurer may also have a dutyto defend where the underlying complaint could beamended to allege facts that would support a po-tentially covered claim. A few recent duty to de-fend cases may indicate that certain courts are will-ing to depart from these long-standing rules in cer-tain employment-related coverage settings.

1. International Ins. Co. v. Rollprint PackagingProds. Inc., 728 N.E.2d 680 (Ill. App. Ct. 2000):CGL insurer sought declaratory judgment thatpolicy provided no coverage for an employee’s




claims against the employer for discrimina-tion on the basis of age, national origin andreligion and retaliation. Held: Insurer had aduty to defend the employer in the underly-ing lawsuit. The employee made sufficientallegations of a “wrongful eviction” (althoughit was not a specifically articulated cause ofaction) to trigger the insurer’s duty to defend.See also Schultze v. Continental Ins. Co., 619N.W.2d 510 (N.D. 2000) (holding that a pro-fessional liability insurer would ordinarily haveno duty to defend sexual discrimination claimsbut because the underlying complaint includeda defamation claim, the insurer had a dutyto defend the entire lawsuit).

2. Butts v. Royal Vendors, Inc., 504 S.E.2d 911(W.Va. 1998): CGL insurer sought declara-tory judgment that policy provided no cov-erage for an employee’s claims against his em-ployer for wrongful discharge and inducementof physician’s breach of fiduciary duty byreleasing employee to return to work. Held:Even though the underlying complaint madeno allegations of defamation, the complaintinvoked the insurer’s duty to defend underpersonal injury coverage. An insurer’s obli-gation to defend is not dependent on the“precise use of terms within the complaint thatwould ‘unequivocally delineate a claim which,if proved, would be within the insurance cov-erage.’” Accordingly, “since the critical ele-ments of a false defamatory statement thatwas published to another which resulted ininjury [were] clearly stated on the face of thecomplaint, the averments of [the employee’s]complaint [were] sufficient to invoke [theinsurer’s] obligation to defend under . . . thePersonal and Advertising Injury section.”

3. Buss v. Superior Court of Los Angeles, 939P.2d 766 (Cal. 1997): Policyholder tendereddefense of underlying action containing bothpotentially covered claims and claims thatapparently were not covered to its CGL in-surers. One insurer agreed to provide a de-fense but, following settlement of the under-lying action, refused to contribute to the settle-ment. Policyholder brought suit against in-surer for contribution to settlement and in-




surer filed claims against policyholder for re-imbursement of defense costs. Held: Whereunderlying action is “mixed,” that is, contain-ing claims that are potentially covered andclaims that are not covered, insurer has a dutyto defend underlying action in its entirety. Inorder for the insurer to defend the actionmeaningfully, insurer “cannot parse the claims,dividing those that are at least potentiallycovered from those that are not. To do sowould be . . . futile.” However, upon con-clusion of underlying action the insurer mayseek reimbursement for identifiable defensecosts paid for the defense of claims that werenot at least potentially covered by the policy.

A strong dissent in Buss takes the majorityopinion to task for ignoring express policylanguage obligating the insurer to defend theentire “suit.” Buss is an ill-considered deci-sion that, in ignoring the language of thepolicy, encourages coverage litigation on theapportionment issue.

4. Roman Mosaic and Tile Co. v. Aetna Cas. &Sur. Co., 704 A.2d 665 (Pa. Super. 1997):Policyholder brought coverage action againstits CGL insurer for defense and indemnifica-tion in underlying Title VII action. Underly-ing complaint alleged facts that were poten-tially covered under policy. Held: “[T]heactual details of [the plaintiff’s] injuries arenot dispositive of whether [the insurer] has aduty to defend. Rather, it is the nature ofthe allegations and claims that fixes the de-termination.” Court equated the phrase “aris-ing out of” with “but-for” causation andfound that policyholder failed the but-for testbecause the underlying plaintiff’s injuries werenot causally connected with the facts support-ing potentially covered claims. Court readthe underlying complaint as alleging thatplaintiff’s injuries arose from sexual harass-ment and not from the facts supportive of acovered claim, and hence found that the in-surer owed no duty of defense or indemnity.Court also found unpersuasive thepolicyholder’s argument regarding the differ-ences between Pennsylvania fact pleading andfederal notice pleading requirements.




Roman Mosaic relied on a 1949 decision ofthe Pennsylvania Supreme Court in stating the“rule” that the duty to defend depends upon“the nature” of the allegations of the under-lying complaint. See Springfield Twp. v.Indem. Ins. Co. of N. Am., 64 A.2d 761 (Pa.1949). In so doing, the Roman Mosaic courtfailed to acknowledge that Springfield Town-ship had been effectively overruled 10 yearslater in Cadwallader v. New Amsterdam Cas.Co., 152 A.2d 484 (Pa. 1959), which set forthPennsylvania’s broad duty to defend rule thathad been consistently applied by Pennsylva-nia courts until Roman Mosaic’s aberrantdecision.

5. Duff Supply Co. v. Crum & Forster Ins. Co.,No. Civ. A. 96-8481, 1997 WL 255483 (E.D.Pa. 1997): Policyholder brought suit againstits CGL insurer seeking defense and indem-nity for underlying Title VII sexual harass-ment action. Complaint in underlying actionalleged facts in support of hostile work envi-ronment claims that could be construed as aclaim for defamation. Held: Where poten-tially covered claim may be construed fromthe facts contained in the complaint, insurerhas a duty to defend the entire action despitethe fact that the complaint does not explic-itly title a count in terms that potentially bringsit within the scope of coverage. Court notedthat if this was not the rule “then the unartfulpleader would be the darling of the insuranceindustry.”

6. Bradley Corp. v. Zurich Ins. Co., 984 F. Supp.1193 (E.D. Wis. 1997): Policyholder broughtsuit against its CGL insurer for failing to de-fend it against discrimination claims broughtby former employee. Underlying complaintalleged facts sufficient to support a claim forslander that would be covered by the CGLpolicy, although no count in complaint wastitled “slander.” Held: “[T]he choice of le-gal theory stated in the tendered complaintis not determinative of the duty to defend;the question instead is ‘whether that conductas alleged in the complaint is at least argu-ably within one or more of the categories ofwrongdoing that the policy covers.’” Thus,




by pleading facts sufficient to support a claimfor slander, the underlying complaint raisedat least a possibility of a covered claim therebytriggering the duty to defend.

7. American Mgmt. Ass’n v. Atlantic Mut. Ins.Co., 641 N.Y.S.2d 802 (N.Y. Gen. Term. 1996),aff’d by, 651 N.Y.S.2d 301 (N.Y. App. Div.1996): Policyholder sued its umbrella insurerfor failing to defend it in an underlying agediscrimination suit. Held: Insurer had dutyto defend the policyholder in the age discrimi-nation suit because it “alleged enough factsto make a prima facie claim for disparate im-pact discrimination” even though complaintalso alleged intentional age discrimination.Because an “insurer is obligated to defend anaction brought against the insured wheneverthe complaint alleges a cause of action cov-ered by the policy,” the insurer was obligatedto defend the underlying suit.

B. Exclusions

1. Expected Or Intended

a. Majority Rule: “Expected and intended” exclusion-ary language in the occurrence definition potentiallybars coverage only when the insured intended boththe act and the resulting bodily injury or propertydamage. Some courts have held that the insuredgenerally is found to intend resulting injury if hedesired to cause the consequences of his act or actedknowing that that the consequences were substan-tially certain to result. Intentional acts are consid-ered occurrences or accidents unless the corporatepolicyholder’s responsible management intends theresulting injury or damage. SL Indus., Inc. v. Ameri-can Motorists Ins. Co., 607 A.2d 1266 (N.J. 1992).

See also Maine State Acad. of Hair Design v. Com-mercial Union Ins. Co., 699 A.2d 1153 (Me. 1997):Policyholder was sued by former employee in an un-derlying action for sexual harassment.

Held: “Expected or intended” language in policyand employment exclusion did not eliminate poten-tial for coverage. For purposes of liability insurance,the accidental nature of an injury derives from theunintentional nature of the consequences resulting




from the act. Accordingly, “expected or intended”exclusion does not automatically bar coverage forintentional acts.

b. Cases cited by insurers: Some courts have held thatintentional acts are not considered occurrences oraccidents, regardless of whether the resulting harmwas intended. American Guar. & Liab. Ins. Co. v.Vista Med. Supply, 699 F. Supp. 787, 791-92 (N.D.Cal. 1988) (in employment related coverage case,“reject[ing] the argument that while the act wasintentional, the damages were not”); Save Mart Su-permarkets v. Underwriters at Lloyd’s London, 843F. Supp. 597 (N.D. Cal. 1994) (same).

2. Various Employment Exclusions

a. Employment Exclusion: Policy may exclude cover-age for “bodily injuries to an employee of the in-sured arising out of and in the course of employ-ment by the insured . . .”

1. Agricultural Ins. Co. v. Focus Homes, Inc., 212F.3d 407 (8th Cir. 2000): Employees broughtsexual harassment suit against policyholdersand the parties settled after binding arbitra-tion. Subsequently, the insurers brought adeclaratory judgment action, arguing they hadno duty to defend or indemnify the parties.Insurer relied on an exclusion in the CGLpolicy that barred coverage for “‘bodily in-jury’ to . . . an ‘employee’ of the Insured arisingout of and in the course of . . . employmentby the Insured . . . [or] performing duties re-lated to the conduct of the Insured’s business. . . whether the Insured may be liable as anemployer or in any other capacity.” Held:The employment exclusion in the policy barredcoverage. The complaint identified policyhold-ers as their employer and the allegations inthe complaint only addressed the policyhold-ers as an employer. Thus “there was no cov-erage under the CGL policy because of theemployer’s liability exclusion.”

2. Scottsdale Ins. Co. v. Scholl-Fassnacht, No.Civ.A.00-CV-268(CRW), 2000 WL 875693 (E.D.Pa. June 26, 2000): Employee sued her em-ployer for equitable relief and monetary dam-ages to redress the deprivation of civil rights




she suffered after she was allegedly sexuallyharassed at work. The CGL insurer sought adeclaratory judgment that the employee exclu-sion barred coverage. The exclusion eliminatedcoverage for claims of “bodily injury to anemployee of the insured arising out of and inthe course of his employment by the insuredfor which the insured may be held liable asan employer or in any other capacity.” Held:The employee exclusion applied to bar cover-age because all of the employee’s “claims werebased on her employment relationship with [thepolicyholder] and any injuries she incurred[were] causally connected with her employmentwith the [policyholder].” The court rejectedthe policyholder’s argument that the exclusiondid not apply to conduct that occurred whilethe employee was not “on the clock per se,”concluding that “whether the claimant is ac-tually working at the time of the injury is ofno moment.”

3. American Motorists Ins. Co. v. L-C-A SalesCo., 713 A.2d 1007 (N.J. 1998): Former em-ployee sued policyholder for wrongful termi-nation on the basis of age. Policyholder soughtcoverage under CGL policies containing em-ployment exclusion. Held: Employment ex-clusion in CGL policy precluded policyholderfrom obtaining coverage under the policy fordamages arising from employee’s wrongfultermination claims. Policyholder argued thatthe bodily injuries alleged by the former em-ployee arose from the wrongful terminationand not in the course of his employment andtherefore damages for such were not excludedfrom coverage. Ignoring the black-letter ruleof construction that exclusions are to be nar-rowly construed, the court found that “[t]hephrase ‘arising out of’ has been defined broadlyin other insurance coverage decisions to meanconduct ‘originating from,’ ‘growing out of’or having a ‘substantial nexus’ with the ac-tivity for which coverage is provided,” andthus bodily injury arising from wrongful ter-mination arose in course of employment andis not covered.

L-C-A Sales may effectively overrule prior pro-policyholder decision of New Jersey interme-




diate appellate court in New Brunswick Sci-entific Co. v. Continental Ins. Co., No. A-5664-94T2, slip op. (N.J. Super. App. Div., April18, 1996), reprinted in Mealey’s Emerg. Ins.Disp. at § G-1 (May 28, 1996).

4 . St. Paul Fire & Marine Ins. Co. v. SeagateTech., Inc., 570 N.W.2d 503 (Minn. Ct. App.1997): Insurer had no duty to defend poli-cyholder in action brought by a female em-ployee who was assaulted by a co-employeewith whom she had had a personal rela-tionship that had terminated prior to theassault, when the CGL policy contained the“arising out of and in the course of employ-ment” exclusion.

5. Globe Indem. Co. v. Mohenis Servs., Inc., No.97-3849, 1998 WL 409026 (E.D. Pa. June 29,1998): In coverage action arising in connec-tion with claims brought under the Ameri-cans With Disabilities Act, finding CGL policythat expressly provided coverage for discrimi-nation under personal injury coverage wasambiguous when two different employment ex-clusions also purported to bar coverage entirelyfor discrimination claims. Meaning of ambigu-ous policy language was issue of fact for thejury.

6. Compare SCI Liquidating Corp. v. HartfordIns. Co., 526 S.E.2d 555 (Ga. 2000): Insurercontended that there was no coverage for aTitle VII sexual harassment claim where anumbrella policy exclusion barred coverage forclaims “arising out of and in the course oftheir employment.” Held: The “arising out”of exclusion did not exclude coverage forclaims originating from a sexual harassmentsuit. The exclusion was only triggered if aninjury both arises out of and in the course ofemployment. Because sexual harassmentclaims do not “arise out of employment” un-der Georgia law, the exclusion was not ap-plicable. See also Byrd v. Richardson-Greenshields Secs., Inc., 552 So.2d 1099 (Fla.1989) (stating that for purposes of Workers’Compensation policy, “the injury must ‘ariseout of’ employment in the sense that it is




caused by a risk inherent in the nature of thework in question . . . . We conclude that asa matter of public policy, sexual harassmentshould not and cannot be recognized as a ‘risk’inherent in any work environment”).

7. Zaiontz v. Trinity Universal Ins. Co., 87 S.W.3d 565 (Tex. Ct. App. 2002): Employee re-covered a judgment against his employer’spresident after he was injured in the courseof his employment while spraying a chemi-cal compound. CGL and umbrella insurersdenied coverage and refused to defend thesuit based, in part, on an employee exclusionthat barred coverage for “bodily injury” to“[a]n employee of the insured arising out ofand in the course of employment by the in-sured.” The employee sued his employer’sinsurers to collect his judgment. Held: Theemployee exclusion in the employer’s CGL andumbrella policies did not preclude the em-ployee from obtaining coverage. The policiescontained a “Separation of Insureds” clause,meaning “the employee exclusion applie[d]only if the insured who is actually seekingcoverage under the policy is the injuredclaimant’s employer.” Because the presidentof the employer was the insured actually seek-ing coverage and not the employer itself, theemployee exclusion did not apply. Neverthe-less, the court held that coverage was excludedbecause (1) the president was not an insuredunder the CGL policy for purposes of theemployee’s suit and (2) the umbrella policycontained a pollution exclusion that barredcoverage.

For an extended discussion of the significantlimitations on the scope of this version of theemployment exclusion, see J.E. Scheuermannand A.W. Tamarelli, Jr., The Narrow Param-eters of the Employment Exclusion, 11 JohnLiner Rev. 39 (Fall 1997).

b. Other Employment Exclusions

1. Another form of an employment exclusionprovides:




This insurance does not apply to: “Bodily in-jury” [or “Personal injury”] to:

(1) A person arising out of any:

(a) Refusal to employ that person;(b) Termination of that person’s em-

ployment; or(c) Employment-related practices,

policies, acts or omissions, suchas coercion, demotion, evalua-tion, reassignment, discipline,defamation, harassment, humili-ation or discrimination directedat that person, . . .

Despite the insurance industry’s attempt totreat this form of employment exclusion asan “absolute” exclusion, the requirement thatthe employment-related practices, policies,actions or omissions be “directed at” the un-derlying claimant places severe limitations onthe scope of this exclusion. At a minimum,for example, because most hostile work envi-ronment and disparate impact claims underTitle VII are not “directed at” the person, theywould not be barred by this exclusion.

2. Golden Eagle Ins. Corp. v. Rocky Cola Café,Inc., 114 Cal. Rptr. 2d 16 (Cal. Ct. App. 2001):CGL insurer sought declaratory judgment thatemployment-related practices exclusion barredcoverage for sexual harassment and defama-tion suit. Held: The exclusion did not applyto the alleged defamation and it was poten-tially covered. The defamatory statement thatthe underlying plaintiff was a “sexuallypromiscuous and calculating bitch” was notmade in the context of her employment, norwas the remark directed to her performanceduring employment or to anything else relat-ing to her employment.

3. Zurich Ins. Co. v. Smart & Final Inc., 996 F.Supp. 979 (C.D. Cal. 1998): CGL insurersought declaratory judgment that employment-related practices exclusion barred coverage foremployee’s allegations of false arrest and falseimprisonment by the insured employer. Held:The exclusion did not apply to the alleged false




arrest and imprisonment. “Rather, as appliedto a false arrest or imprisonment claim, theundefined phrase ‘other employment-relatedpractices, policies, acts or omissions’ is am-biguous.” See also Mactown, Inc. v. Conti-nental Ins. Co., 716 So. 2d 289 (Fla. Ct. App.1998) (finding employment-related practicesexclusion inapplicable to claim of negligentretention and finding that employer’s “liabil-ity, if any, under negligent retention count isseparate and apart from [the employee’s] al-leged intentional act”); Barnes v. EmployersMut. Cas. Co., No. 03A01-9812-CH-00403,1999 WL 366587 (Tenn. Ct. App. June 8, 1999)(holding that claim for malicious prosecutionof a former employee for theft is not barredby employment-related practices exclusion).

4. Moroni Feed Co. v. Mutual Serv. Cas. Ins. Co.,287 F.3d 1290 (10th Cir. 2002): Policyholder’sformer president brought defamation suitagainst policyholder and CGL insurer deniedcoverage. Held: An exclusion that barredcoverage for “injury arising out of the em-ployment practices of the insured, includingwrongful dismissal of, or wrongful termina-tion of, or discrimination against any officeror employee” was unambiguous and barredcoverage. Defamation by employees withinthe scope of their employment could be con-sidered an “employment practice.”

For an extended discussion of the significantlimitations on the scope of this version of theemployment exclusion, see J.E. Scheuermannand M.A. May, The Employment-Related Prac-tices Exclusion: An Absolute Bar to Cover-age? Absolutely Not, 13th Annual MidyearMeeting of the Insurance Coverage Commit-tee (March 8-10, 2001).

5. A third form of employment exclusion provides:

“This policy will not apply . . . to any li-ability of [the policyholder] arising out ofinjury of an employee in the course of em-ployment by you . . . whether [the policy-holder] may be liable as an employer or inany other capacity.”




The U.S. Court of Appeals for the FourthCircuit has found that the unqualified use ofthe term “injury” in this form of employmentexclusion bars coverage for claims of sexualharassment, discrimination, and constructivedischarge. Gates, Hudson & Assoc., Inc. v.Federal Ins. Co., 141 F.3d 500 (4th Cir. 1997).

6. Cyprus Plateau Mining Corp. v. Common-wealth Ins. Co., 972 F. Supp. 1379 (D. Utah1997): Policyholder purchased CGL policycontaining exclusion stating: “This Policy doesnot cover Personal Injury including BodilyInjury to any employee of any Insured underthis policy for which the Insured or his in-demnitee may be held liable.” Policyholder’semployee was injured in the course of em-ployment and policyholder sought coverageunder its CGL policy. Held: Use of phrase“any insured” in the context of this exclu-sion is ambiguous and must be construedagainst the insurer. Even though the pur-pose of the exclusion was to bar coverageunder the CGL policy that was duplicativeof Workers’ Compensation coverage, the factthat the exclusion is subject to more than onereasonable interpretation necessitates a con-struction in favor of the policyholder result-ing in coverage for the underlying injuries.See also Sphere Drake Ins. v. Shoney’s Inc.,923 F. Supp. 1481 (M.D. Ala. 1996) (conclud-ing that exclusion barring coverage for “bodilyinjury to any employee of the insured forwhich the insured may be held liable as anemployer or in any other capacity” could notpreclude coverage where fact issues remainedabout whether underlying sexual harassmentclaimants’ injuries were suffered within theircourse of employment).

II. Workers’ Compensation (“WC”)/ Employer’s Liability (“EL”) Policies

A. Coverage Grants

1. WC Coverage: WC policies generally provide coverage forbodily injuries to employees for which an employer maybe liable under a Workers’ Compensation act, which typi-cally makes the employer strictly liable for an employee’saccidental bodily injury arising out of and in the course of




his or her employment. Nonetheless, the California Su-preme Court has held that a WC insurer had no duty todefend an employer-policyholder from a former employee’swrongful termination suit that alleged he was terminatedbecause he was not white. La Jolla Beach & Tennis Club,Inc. v. Industrial Indem. Co., 884 P.2d 1048 (Cal. 1995)(rejecting employer’s argument that policy was ambiguousand it could have reasonably expected that its insurer woulddefend it in the underlying suit because “the policy’s lan-guage is susceptible of no other objective construction thanproviding coverage solely for workers’ compensation ben-efits, or claims, proceedings, or suits for such benefits andnot for civil suits for damages”).

2. EL Coverage: EL policies are intended to fill a potentialgap in coverage where the employee’s bodily injury doesnot fall within the WC policy and is excluded under a CGLemployment exclusion. EL policies generally provide cov-erage for “bodily injuries” to employees who are not withinthe protection of a Workers’ Compensation statute, e.g.,because of “opt out” provisions or because the Workers’Compensation Statute allows the employee to bring a claimagainst his or her employer for injuries resulting from in-tentional torts (see, e.g., W. Va. Code Ann. § 23-4-2 (West1998)).

3. “Arising out of and in the course of employment”: ELpolicies typically provide coverage for accidental bodily injurywith any causal nexus to claimant’s employment. See, e.g.,Commercial Union Insurance Company, Workers Compen-sation and Employers Liability Insurance Policy WC 00 0000 A at 2 (August 1991).

a. Intentional Acts: The Sixth Circuit U.S. Court ofAppeals has held that intentional acts committed bythe employer against the employee may “arise outof and in the course of” employment as this phraseis found in coverage grant of EL policy. LumbermensMut. Cas. Co. v. S-W Indus. Inc., 39 F.3d 1324 (6thCir. 1994). The Sixth Circuit held that an EL policyprovided coverage for employee’s lung injuries thatoccurred as a result of exposure to toxic fumes onthe job and alleged to result from his employer’sintentional tort. Insurer argued that intentional tortcannot arise out of employment, but the court re-jected this argument, stating “[i]t strains credulity,therefore, for the . . . insurers in this case to con-tend that these injuries did not arise out of and inthe course of . . . employment.” See also Melton v.Industrial Indem. Co., 103 Cal. Rptr. 2d 222 (Cal.




Ct. App. 2001) (Ordered Not Published) (conclud-ing that WC policy covered claims against the em-ployer for improperly discharging an employee forfiling a WC claim and “intentional act” exclusiondid not bar coverage).

b. See also Knox v. Combined Ins. Co. of Am., 542A.2d 363 (Me. 1998) (claims of sexual harassmentand assaults are covered under WC policy if factsreveal that harassment and assaults arose out of andin the course of employment). But cf., Davis v.Dillmeier Enters., Inc., 956 S.W.2d 155 (Ark. 1997)(no remedy under WC statute for claim of discrimi-nation based on physical disability); HDH Corp. v.Atlantic Charter Ins. Co., 681 N.E. 2d 847 (Mass.1997) (WC insurer had no duty to defend policy-holder against claims of emotional distress causedby sexual discrimination and wrongful terminationwhen claimant, a former employee, had not preservedright to sue).

4. Bodily Injury: Claims of hostile work environment and sexualharassment may fall within the scope of bodily injury cov-erage because bodily contact is sufficiently inherent in hostilework environment claims that an insurer’s duty to defendwill be triggered by such allegations. General Accident Ins.Co. of Am. v. Gastineau, 990 F. Supp. 631 (S.D. Ind. 1998).See also EEOC v. Southern Publ’g Co., Inc., 894 F.2d 785(5th Cir. 1990) (concluding a WC/EL insurer was obligatedto defend a policyholder in an underlying sexual harass-ment suit because the complaint’s allegations of “physicalpain as well as embarrassment, humiliation and emotionaldistress . . . [were] sufficient . . . to allege ‘bodily injury’”).

5. Employer Negligence: Where a plaintiff alleges an employer’snegligence caused the plaintiff’s injuries, the employer mayhave good cause for coverage under its WC and EL poli-cies. Seminole Point Hosp. Corp. v. Aetna Cas. & Sur.Co., 675 F. Supp. 44 (D.N.H. 1987) (concluding that in-surer was obligated to defend and indemnify an employerwith respect to its allegedly negligent supervision and in-vestigation of sexual harassment incidents).

B. Exclusions

1. Employment Exclusion: EL policies may contain some formof employment exclusion, excluding from coverage dam-ages arising from specific employment-related injuries.




Schmidt v. Smith, 713 A.2d 1014 (N.J. 1998): EL policycontained exclusion for bodily injuries caused by sexualharassment. Policyholder sought coverage under EL por-tion of WC policy for a suit by an employee for sexualharassment. Held: Provision of EL policy excluding fromcoverage bodily injuries from sexual harassment is vio-lative of statutorily-declared public policy and is there-fore void. Court noted that state statute required cor-poration to have sufficient insurance coverage for obli-gations arising from bodily injury to employees. The Courtheld that a coverage exclusion for non-bodily injury dam-ages from sexual harassment would be valid as long ascoverage is not excluded for sexual harassment bodilyinjuries, including emotional injuries accompanied byphysical manifestations.

2. Contract Exclusion: EL policy may also contain exclusionfor amounts owed by policyholder pursuant to a contrac-tual obligation. There do not appear to be any court deci-sions construing an EL policy’s contract exclusion. Becausethe language of the exclusion is usually the same as thecontract exclusions that appear in other liability policies,courts may construe them similarly. See Section III (B)(1),infra.

III. Errors and Omissions (“E&O”) / Directors and Officers (“D&O”) Policies

A. Coverage Grants

There are no standard form E&O or D&O policies. The lack of stan-dard E&O and D&O forms means that even slight differences in policywordings may be critical in assessing coverage from one policy to thenext.

1. A Common Coverage Grant in an “E&O” Policy Provides:

“The Company shall pay on behalf of the Insured Personall loss for which the Insured Person is not indemnified bythe Insured Organization and which the Insured Personbecomes legally obligated to pay on account of any claimmade against him, individually or otherwise . . . for a Wrong-ful Act committed, attempted, or allegedly committed orattempted, by the Insured Person. . . .”

Chubb Insurance Company, Executive Liability and Indem-nification Policy, 14-02-0494 (January 1985), reprinted inInternational Risk Management Institute, Inc., Directors andOfficers Liability Insurance Coverage Analysis (“IRI, D&OCoverage”) at X.E.2.




2. A Common Coverage Grant In A D&O Policy Provides:

“This policy shall reimburse the Company for Loss arisingfrom any claim or claims which are first made against theDirectors or Officers . . . for any Wrongful Act in theirrespective capacities as Directors or Officers of the Com-pany, but only when and to the extent that the Companyhas indemnified the Directors or Officers for such Loss.”

National Union Fire Insurance Company, Directors andOfficers Insurance and Company Reimbursement Policy47353 (August 1988), reprinted in IRI, D&O Coverage atX.E.3.

3. Claims Made Coverage:

E&O and D&O policies are typically “claims made” poli-cies. That is, they indemnify a policyholder for claims madeagainst it during the policy period (or during an extendedreporting period) regardless of when the acts or omissionsgiving rise to those claims occurred or when the resultinginjury occurred.

a. Claim: The term “claim” may be defined in the policyas “(1) a written demand for monetary or non-mon-etary relief or (2) civil, criminal, or administrativeproceeding for monetary or non-monetary relief whichis commenced by a complaint, indictments or ad-ministrative notice of charges.”

A typical demand letter would fall within the firstpart of this definition.

b. National Union Fire Ins. Co. of Pittsburgh, PA v.Cary Cmty. Consol. Sch. Dist. No. 26, 93 C 6526,1995 WL 66303 (N.D. Ill. Feb. 15, 1995): E&O in-surer defended age discrimination claim broughtagainst policyholder and brought declaratory judg-ment action that second E&O insurer was respon-sible for all the costs of defense and settlement be-cause the claim was made during its policy period.The policy did not define “claim” and the courtdefined “claim” as “a demand for money or prop-erty as of right.” Held: Second E&O insurer wasobligated to defend the claim because a claim hadfirst been made during its policy period. Althoughpolicyholder had received an EEOC first notice ofage discrimination prior to the policy period, it ex-plicitly stated no action was required at the time.Accordingly, the court concluded that a claim was




first made when the policyholder received an EEOCsecond notice which included a signed charge andrequired a response.

4. No “Entity” Coverage: D&O coverage typically pro-vides coverage only to the corporation (or associa-tion) for amounts it is legally obligated to reimbursethe directors or officers in connection with claimsmade against them by third parties. It typically doesnot provide coverage for claims against the corpo-ration (or association) itself. Olympic Club v. Inter-ested Underwriters at Lloyd’s London, 991 F.2d 497(9th Cir. 1993).

5. Definition of “Loss”: “Loss” typically includes “dam-ages, judgments, settlements, costs and defense oflegal actions, claims, or proceedings and appeals there-from.”

Issue: Whether this definition includes coverage forequitable monetary relief or injunctions. SeeHarristown Devel. Corp. v. International Ins. Co.,CIV. A. No. 87-1380, 1988 WL 123149, at *1 (M.D.Pa. Nov. 15, 1988) (citing cases).

6. Wrongful Acts:

a. Coverage for Intentional Acts: Courts haveheld that the following definition of “Wrong-ful Act” provides coverage for intentional acts:

Any actual or alleged error, misstatement, mis-leading statement, act or omission, or neglector breach of duty by the Directors or Offic-ers in the discharge of their duties solely byreason of their being Directors and Officersof the Company.

New Madrid County Reorganized Sch. Dist.No. 1 v. Continental Casualty Co., 904 F.2d1236 (8th Cir. 1990); Eveleth v. St. Paul Fire& Marine Ins. Co., 515 N.W. 2d 576 (Minn.1994).

b. No Coverage for Intentional Acts: Where“Wrongful Act” is defined in the policy as“negligent act, error, omission, misstatement,or misleading statement committed or allegedto have been committed” by the policyholderor its directors or officers, one court has held




that a claim of intentional retaliatory dischargewas not covered. Golf Course SuperintendentsAss’n v. Underwriters at Lloyd’s of London,761 F. Supp. 1485 (D. Kan. 1991).

The court rewrote the policy language so that“negligent” modifies not only “act,” but alsoall of the following terms.

7. Defense Obligations: Often E&O or D&O insurershave no duty to defend the policyholder. Thesepolicies often provide instead a duty to reimbursepolicyholder for defense costs. The D&O policy some-times gives the insurer the right to settle any em-ployment practices claim subject to the policyholder’swritten consent. If the policyholder withholds con-sent, the insurer’s liability for all loss may not ex-ceed the amount for which it could have settled theclaim plus defense costs incurred as of the date suchsettlement was proposed in writing by the insurer.

8. Allocation Issues: D&O policies commonly containprovisions requiring the insurer and the policyholderto use their best efforts to determine a fair and properallocation between themselves of the amounts incurredin the defense or settlement of a claim or any re-lated judgment.

Allocation may occur by claims, i.e., covered versusuncovered claims (claim allocation), or by persons,i.e., insured versus uninsured persons (party alloca-tion). Where the policy does not provide guidelinesfor allocation, courts may employ their own alloca-tion approaches:

a. Relative Exposure Approach: This methodallocates coverage responsibility between in-sured and uninsured parties according to therelative risk of exposure of the various par-ties involved.

b. Larger Settlement Approach: Settlement al-located between parties to the extent that thesettlement is demonstrated to be higher be-cause of activities of uninsured persons whowere sued or whose activities contributed tothe suit.

c. Claims Allocation: Allocation on claims ba-sis is often avoided by pre-settlement nego-




tiation, but some courts have undertakenfact-specific analysis of pleadings and therecord from the underlying case to avoid pro-tracted coverage litigation. See AmericanHome Assurance. Co. v. Libbey-Owens-FordCo., 786 F.2d 22 (1st Cir. 1986) (court ap-plied fact-based allocation analysis to allocateunderlying settlement responsibility).

d. Defense Cost Allocation: General rule is thatdefense costs need not be allocated as longas the costs are reasonably related to defenseof covered claims.

For a more complete discussion of the alloca-tion issue, see P.J. Kalis, T.M. Reiter, and J.R.Segerdahl, Policyholder’s Guide to the Lawof Insurance Coverage, Chap. 11 (Aspen Lawand Business 1997).

B. Exclusions

1. Insured v. Insured Exclusion: This common exclu-sion typically bars coverage for suits by one namedinsured (e.g., the corporation or a director) againstanother named insured (e.g., another director). Thepurpose of the exclusion is to bar coverage for col-lusive or friendly suits. Courts have found that it isnot a bar to a wrongful termination suit brought bya former director or officer, Conklin Co. v. NationalUnion Fire Ins. Co., 1987 WL 108957 (D. Minn. Jan.28, 1987), or by employees who allege violations ofthe Age Discrimination in Employment Act, Town-ship of Center v. First Mercury Syndicate, 117 F.3d115 (3d Cir. 1997). Cf. Franklin Holding Corp. (Del.)v. National Union Fire Ins. Co. of Pittsburgh, PA,689 N.Y.S.2d 492 (N.Y. App. Div. 1999) (excludingcoverage due to the insured v. insured exclusion butquoting policy provision that noted the exclusion didnot apply to “wrongful termination of employmentclaims brought by a former employee other than aformer employee who is or was a Director of theCompany”).

2. Contractual Obligations Exclusions: E&O policiesoften contain a provision that in certain instancesexcludes amounts owed pursuant to contractualobligation. The majority of courts find that thisexclusion does not bar coverage for back pay awards.




a. New Madrid County Reorganized Sch. Dist.No. 1, Enlarged v. Continental Cas. Co., 904F.2d 1236 (8th Cir. 1990): Policyholder wassued in a civil rights action and found liablefor back wages. Held: Under E&O policy,contract exclusion precluding coverage forcontractual obligations did not operate to barcoverage for back wages. Court found thatbecause the underlying action was not purelycontractual, insured could recover amountsowed in back wages under E&O policy.

b. School Dist. for City of Royal Oak v. Conti-nental Cas. Co., 912 F.2d 844 (6th Cir. 1990),implicitly overruled on other grounds by, SalveRegina Coll. v. Russell, 499 U.S. 225 (1991):Policyholder was sued in underlying actionfor discrimination and found liable for backwages. Insurer denied coverage under con-tractual obligations exclusion. Held: Contractexclusion did not bar coverage for back wagesowed because “an exclusion of liability insur-ance coverage for contractually assumed ob-ligations to third parties is operative only wherethe insured would not have been liable to thethird party absent the insured’s agreement topay.” Thus, even though the applicable col-lective bargaining agreement prohibited dis-crimination, suit by employee against insureddid not allege claims for breach of that con-tract, thus rendering inapplicable the contrac-tual exclusion.

3. Bodily Injury: D&O policies may also exclude cov-erage for bodily injury. Philadelphia Indem. Ins. Co.v. Maryland Yacht Club, Inc., 742 A.2d 79 (Md. Ct.Spec. App. 1999) (concluding bodily injury exclu-sion did not apply where policyholder had dischargedan employee for filing a workers’ compensation claimand not for his work-related injury because the“nexus between [the employee’s] wrongful dischargeaction and his bodily injury claim is too attenuatedto permit the [D&O] insurer to invoke the bodilyinjury exclusion”).

IV. Homeowner’s Policies

A. Coverage Grants

Another often-overlooked potential source of insurance coverage for em-ployment-practices claims is homeowners insurance. When an aggrieved




employee sues both the employer and the employee who allegedly causedthe injury, the defendant employee may seek coverage under his/herhomeowners policy. It is important to note that homeowners insuranceis an occurrence-based policy that typically covers damages for bodilyinjury or property damage caused by an occurrence. See Aetna Cas. &Sur. Co. v. Ericksen, 903 F. Supp. 836 (M.D. Pa. 1995) (concludinghomeowners insurer had duty to defend policyholder in a libel suit whereplaintiff alleged policyholder had publicly and falsely accused plaintiffof sexual harassment in the work place).

B. Exclusions

1. Business Pursuits

a. Greenman v. Michigan Mut. Ins. Co., 433 N.W.2d346 (Mich. Ct. App. 1988): Employee sued the poli-cyholder, alleging the policyholder sexually harassedher while she was working in a law firm. Policy-holder sued his homeowners insurer for failing todefend him in the underlying lawsuit and the trialcourt granted the insurer summary disposition. Held:The “business pursuit” exclusion applied to bar cov-erage. The court stated that “[t]he complained ofacts themselves need not be performed for profit;the acts need only be performed during the busi-ness pursuit of the insured.” Consequently, becausethe complained of acts occurred in the law firm wherethe policyholder and underlying plaintiff worked andthe law firm’s activities were continuous and forprofit, the “business pursuit” exclusion applied. Seealso United Food Serv., Inc. v. Fidelity & Cas. Co.of N.Y., 594 N.Y.S.2d 887 (N.Y. App. Div. 1993)(concluding “business pursuits” exclusion inhomeowners policy applied to bar coverage for prop-erty damage caused by an employee to a hotel whileattending a management seminar in his capacity asvice-president of sales).

b. Scheer v. State Farm Fire & Cas. Co., 708 So. 2d312 (Fla. Dist. Ct. App. 1998): Held: Even thoughan underlying complaint alleged that the policyholderhad touched his co-workers’ breasts and buttocksduring the course of his employment, the trial courterred by concluding the “business pursuits” exclu-sion barred homeowners coverage. Because the ex-clusion applied to conduct “primarily taken in fur-therance of a business interest,” the court concludedthat the policyholder’s actions were not related toand did not arise out his profession.




c. Smith v. Sears, Roebuck & Co., 447 S.E.2d 255 (W.Va.1994): A co-worker sued the policyholder for as-sault and battery after the policyholder allegedlyattacked his co-worker in the employer’s parking lotafter the two began arguing about their commissions.Held: The “business pursuit” exclusion did not pre-clude homeowners coverage. The court concludedthat denial of summary judgment was proper be-cause even though “the initial disagreement betweenthe parties was related to business, the conflict oc-curred after the parties had left their work place.”See also Aetna Cas. & Sur. Co. v. Ericksen, 903 F.Supp. 836 (M.D. Pa. 1995) (concluding homeownerspolicy “business pursuit” exception did not applyto policyholder’s allegedly libelous discussion of herinternal sexual harassment complaint with a news-paper reporter).

d. Distinguishing Between “Business Pursuit” and “Inthe Course of Employment”:

Krevolin v. Dimmick, 467 A.2d 948 (Conn. Super.1983): College student sued his professor, allegingthe professor negligently threw a piece of chalk thatstruck him in the eye. The professor impleaded hishomeowners insurer after it refused to defend him.The carrier justified its failure to defend on the ba-sis of the “business pursuits” exclusion. Held: Al-though the professor’s actions were clearly withinthe course of his employment, the “business pursuits”exclusion did not apply to bar coverage. The courtdetermined that the insurance policy must be con-strued as a whole and what constituted a “businesspursuit” had to be determined in the context of thepolicy. Accordingly, the court stated that two otherexclusions (“bodily injury . . . arising out of the ren-dering of or failing to render professional services”and “bodily injury . . . arising out of any premises,other than the insured premises, owned, rented orcontrolled by any insured, but this exclusion doesnot apply to bodily injury to any residence employeearising out of an in the course of his employmentby any insured”) would help determine what theinsurer meant by “business pursuits.” Consequently,the court stated that “business pursuits” was notsynonymous with “in the course of employment.”




2. Expected Or Intended

Homeowners policies usually contain an “expected or in-tended” exclusion that is similar to the “expected or in-tended” exclusion contained in most CGL policies and courtsmay construe them similarly. See Section I (B)(1), supra.

For an extended discussion of the issues discussed in this outline, see:

• J.E. Scheuermann and M.A. May, The Employment-RelatedPractices Exclusion: An Absolute Bar to Coverage? Abso-lutely Not, 13th Annual Midyear Meeting of the InsuranceCoverage Committee (March 8-10, 2001)

• J.E. Scheuermann and A.W. Tamarelli, Jr., “The NarrowParameters of the Employment Exclusion,” 11 John LinerRev. 39 (Fall 1997)

• J.E. Scheuermann and J.K. Baillie, “Employer’s Liability andErrors and Omissions Insurance Coverage for Employment-Related claims,” 18 Western New Eng. Law Rev. 71 (1996)

• J.E. Scheuermann and J.K. Baillie, “Liability Insurance Cov-erage for Employment-Related Claims,” 11B Law of Liabil-ity Insurance (ed. R.H. Long, Matthew Bender, 1995)

• J.E. Scheuermann, “Insurance Coverage for Employment-Related Claims,” 28 Tort & Ins. L. J. 778 (Summer 1993)

• P.J. Kalis, T.M. Reiter, and J.R. Segerdahl, Policyholder’sGuide to the Law of Insurance Coverage, Chaps. 11, 12(Aspen Law and Business 1997)

beyond epli: coverage issues for employment-related claims...2. personal injury a. in umbrella...

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