An employer who was sued for sexual harassment had no insurance coverage under its
business policy and the insurer had no obligation to defend the suit, a federal appeals
court recently ruled. Vienna Family Medical Associates v Allstate Insurance, 78
F.3d 580, 1996 WL 9380, (4th Cir. 1996). Intentional wrongdoing, such as the conduct
alleged in the lawsuit, was not covered by the policy.
The former office manager of a family medical association sued the association and two
of its officers, claiming she was subjected to harassment, discrimination, and
“constructive” discharge, resulting from “negligent, willful and intentional acts.” The
case settled, but the employer's insurance company refused to defend the suit or pay the
settlement.
The employer had a comprehensive business policy which covered claims for “accidental
events, personal injury or advertising injury” and also obligated the insurance company to
defend a lawsuit based on one of these events even if the suit was groundless. The policy
excluded intentional conduct from the definition of the types of claims covered.
The appeals court with jurisdiction over Maryland, West Virginia and other mid-Atlantic
states determined that although the lawsuit referred to “negligent” acts the suit was really
based upon claims of intentional conduct. The suit claimed the office manager was
subjected to a hostile work environment, retaliation, breach of contract, and intentional
infliction of emotional distress -- all involving intentional conduct. Under the policy, the
court ruled, the insurer had no obligation to cover such claims.
The court also stated that if the policy was “reasonably susceptible” of an interpretation
that the claims made in the suit might be covered, the insurer may be required to defend.
In this case, the court found that only intentional conduct was alleged; as the court
determined intentional conduct to be outside the policy's coverage, the insurer was not
required to defend the employer.
Although the case was decided under West Virginia law, it illustrates the importance of
the particular provisions of insurance policies in defining the scope of coverage.
Employers should carefully review their policies with counsel to determine the extent and
nature of coverage applicable to employment disputes.