Court Recently Holds that EEOC Lawsuit Not Covered Under EPLI Policy

Now may be a good time to review your Employment Practices Liability Insurance (“EPLI”) Policy to ensure coverage is available when the EEOC comes knocking on your door.

In an order entered on September 16, 2011, the U.S. District Court for the Middle District of Tennessee found that based upon the plain language of the policy, Cincinnati Insurance Company (“Cincinnati”) did not have a duty to either defend or indemnify Cracker Barrel in a lawsuit brought by the EEOC because the policies at issue only covered lawsuits brought by employees. Cracker Barrel Old Country Store, Inc. v. Cincinnati Insurance Company.

The EEOC’s lawsuit arose out of ten charges filed by Cracker Barrel employees over the course of three years, which was clearly a complex EPL insurance defense case from the very beginning.  After the suit was filed, Cracker Barrel provided notice to Cincinnati, who was Cracker Barrel’s EPLI carrier.  Cincinnati denied coverage.

Cracker Barrel ultimately settled the lawsuit on its own for $2,000,000, and incurred $700,000 in legal fees.

Cracker Barrel then filed suit against Cincinnati based upon Cincinnati’s refusal to provide coverage under the applicable EPLI policies, which intrigued many EPL insurance defense attorneys who were watching the case.

Cincinnati countered by stating that no coverage existed because the policies clearly precluded the commission’s lawsuit.  At issue was whether the policies precluded coverage for the EEOC’s lawsuit, given that each policy defined a claim as one “[b]rought by any past, present or prospective ’employee(s)’.”

In finding in favor of Cincinnati, the Court found decisive the fact that the lawsuit was not brought by an employee, but rather the commission. The finding got the attention of many EPL insurance defense law firms that may have similar cases.

With regards to indemnity: “the definition of a ‘claim’ has a clear meaning that a covered proceeding must be brought by an employee, and the Court must give that meaning effect.”

The EEOC lawsuit was not ‘commenced by the service of’ a charge, according to the plain meaning of that language, even though it may have arisen because previous administrative charges brought potentially illegal activity to the commission’s attention, the court said.

The complaint that commenced the EEOC lawsuit was not brought by an employee, and, therefore, even under Plaintiff’s interpretation of the definition, the lawsuit is not a ‘claim’ under the Policies, the court determined.

With regards to Cincinnati’s duty to defend Cracker Barrel, the Court held the issue was not whether the substance of the allegations gave rise to a duty to defend; rather, it was “[w]hether the form of the lawsuit [fell] within the Policies’ definition of a ‘claim’.”

The Court looked to relevant definitions found in other EPLI policies to support its position that the form of the EEOC’s Complaint did not fall within the applicable policies’ definition of a claim, which EPL insurance defense attorneys would say is an important distinction.

The Court noted that, in the other EPLI policies it reviewed, there were, “[n]o instances where the relevant definition restricted claims to those brought by an employee . . . .”

In fact, in other EPLI policies examined by the Court, the definition of “claim” was broad and did not place a limit on who must bring the covered claim.  Ultimately, the Court stated it could not, “[f]ind ambiguity where none existed merely because Plaintiff did not bargain for the coverage that it expected.”

While an appeal is certainly forthcoming, it would be prudent for employers to review their EPLI policy to ensure that affirmative coverage is provided for EEOC lawsuits, and an experienced EPL insurance defense law firm can help guide you through that review and make any coverage or policy language adjustments that might be needed.

Otherwise, a mistaken presumption could prove costly, as any EPL insurance defense attorney can attest.  If you have any questions about this EPL insurance defense case or your own EPLI Policy, please reach out so we can have a detailed discussion about risk, exposure and the possibility of an EEOC complaint.