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D.C. Circuit Upholds Denial Of EPLI Coverage

Published by on April 27, 2009

In American Center for International Labor Solidarity v. Federal Insurance Company, the D.C. Circuit found in favor of an insurer when it held that the term “claim” in an insurance policy includes Equal Employment Opportunity Commission (“EEOC”) proceedings.  The employer had given notice of the charge after the right to sue letter was issued but not […]

In American Center for International Labor Solidarity v. Federal Insurance Company, the D.C. Circuit found in favor of an insurer when it held that the term “claim” in an insurance policy includes Equal Employment Opportunity Commission (“EEOC”) proceedings.  The employer had given notice of the charge after the right to sue letter was issued but not at the time the charge was filed.  The insurer denied coverage, and prevailed in the ensuing claim litigation.  More after the break.

An employee of the American Center for International Labor Solidarity (“Center”) filed an EEOC discrimination charge, and after receiving a right-to-sue letter, proceeded to file a suit in district court.  The Center notified its insurance carrier, Federal Insurance Company (“Federal”), of the suit per the terms of the policy, which required prompt notice of any claim as a prerequisite to coverage.  The carrier denied coverage, asserting that the Center should have given notice when the charge itself was filed.  The court was forced to decide the coverage issue in a subsequent lawsuit. 

The term “claim” as defined in the policy is any “formal administrative or regulatory proceeding commenced by the filing of a notice of charges, formal investigative order or similar document.”  Thus, the sole issue was whether an EEOC proceeding qualified as a “claim” under the policy, thereby requiring the Center to notify Federal as soon as EEOC charges had been filed.

The court began by citing a well-established canon of interpretation in cases involving insurance policies, which is that ambiguous policy language is to be construed in favor of the insured.  The Center argued that the term “claim” in the policy was ambiguous, and therefore should be interpreted in its favor as not including EEOC proceedings.  In contrast, Federal argued that the canon requires an interpretation that favors all insureds generally, as opposed to the particular insured in the case.  Such an interpretation would designate EEOC proceedings as “claims” that are covered under the policy.  The court declined to resolve this issue because it ultimately found that the term “claim” was unambiguous.

Looking at the EEOC process as a whole, the court found that EEOC proceedings are “formal” and therefore constitute “claims” under the policy which require prompt notice.  The court pointed to the fact that every aspect of EEOC proceedings are governed by regulations, including the filing of charges, the investigation process, and the procedure for determining whether cause exists.  The Center argued that EEOC proceedings are informal because there was no hearing involved in the proceeding at issue and because the EEOC lacks authority to adjudicate liability.  The court rejected the argument, stating that “formality is a question of what proceedings might involve rather than a question of what they ultimately end up involving.”  The court also emphasized the fact that the EEOC’s investigation process may carry significant consequences for the insurer if it is not given a chance to defend early on in the process.

Contributed by Claudia L. Guzman

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