Archive for the ‘Employment Practices Liability Insurance’ Category

Virginia Federal Court Allows Recoupment by Insurer – Where Guilty Pleas Triggered Coverage Exclusions

Friday, May 2nd, 2014

By Christina Van Wert, Sedgwick San Francisco

In Protection Strategies, Inc. v. Starr Indemnity & Liability Co., Civil Action No. 1:13-cv-00763 (E.D. Va. Apr. 23, 2014), the United States District Court for the Eastern District of Virginia granted Starr Indemnity & Liability Company’s (“Starr”) motion for summary judgment on its claim for recoupment of all funds it had advanced to Protection Strategies, Inc. (“PSI”) for its defense of an investigation by the NASA Offices of the Inspector General (“NASA OIG”).  The court concluded that, in the wake of the guilty pleas by executives of PSI, the NASA OIG investigation triggered certain exclusions in PSI’s directors and officers liability insurance policy.

PSI, a global security management and consulting company that did business with NASA, purchased from Starr a form of directors and officers liability coverage that covered individuals and the company itself.  In January 2012, during the coverage period, PSI received a subpoena from the NASA OIG, and a search and seizure warrant relating to PSI’s alleged violations of various false statement and fraud provisions of the U.S. Criminal Code.  The NASA OIG subsequently executed a search of PSI’s headquarters.  Several months later, the U.S. Attorney for the Eastern District of Virginia sent a letter to PSI indicating that it was investigating PSI for civil liability in connection with its participation in the Small Business Administration (SBA) Section 8(a) program.

PSI notified Starr of the NASA OIG investigation and demanded payment of its defense costs.  Starr initially took the position that the investigation did not constitute a “claim” under the policy, which was rejected by the district court.  Thereafter, Starr issued a reservation of rights letter and began reimbursing PSI for the defense costs it incurred in indemnifying its officers, specifically four executives who were the primary targets of the NASA OIG investigation.  The NASA OIG investigation continued through 2012 and, in 2013, the four PSI executives entered guilty pleas, each stipulating that he knowingly and willfully defrauded the U.S. government.

PSI and Starr filed cross-motions for summary judgment.  Starr contended that the guilty pleas triggered four exclusions in the policy, and that it was entitled to recoup the amounts it had advanced for the defense fees.  Three of the exclusions were incorporated into the directors and officers liability coverage section of the policy, Exclusion 3(a) (“Profit Exclusion”), Exclusion 3(b) (“Fraud Exclusion”), and Exclusion 3(d) (“Prior Knowledge Exclusion”).  The fourth exclusion was based on the Warranty and Representation Letter attached to the policy, wherein PSI represented that “[n]o person or entity proposed for insurance under the policy referenced above has knowledge or information of any act … which might give rise to a claim(s), suit(s) or action(s) under such proposed policy.”  The letter further stated that, if any such “knowledge or information exists, then … any claim(s), suit(s) or action(s) arising from or related to such knowledge or information is excluded from coverage.”

In reviewing the evidence, the district court concluded that the policy’s exclusions applied and acted as a complete bar to coverage for the investigation of PSI and its officers.  The district court found that the personal profit and fraud exclusions “unambiguously” applied, as the guilty pleas established that the executives knowingly, intentionally and improperly gained an advantage and illegal remuneration because of their fraudulent activities.  The district court found that the guilty pleas also triggered the prior knowledge exclusion as the pleas showed that each of the officers had knowledge when the policy incepted of an ongoing scheme to defraud the government.  The district court further found that the exclusion in the warranty letter had been triggered as based on PSI’s “material misrepresentation” that no person had knowledge of facts that might give rise to a claim.  The district court concluded that, because the entirety of the defense costs advanced fell under the exclusions in the policy, Starr was entitled to recoupment.

 

AMA’s Recognition of Obesity as a Disease May Trigger Increased Claims under Employment Practices Liability Coverage

Tuesday, September 10th, 2013

By Mari C. Spears, Sedgwick Washington D.C.

In June, the American Medical Association (AMA) adopted a policy recognizing “obesity” as a “disease” requiring a range of medical intervention.  With “obesity” now recognized as a “disease” by the AMA, obese employees may be afforded greater protection under the Americans with Disabilities Act of 1990, as amended by the ADA Amendments Act of 2008 (ADA).  Consequently, obesity-related employee claims may dramatically increase, thereby triggering increased claims for insurance under employment practices liability coverage.

There is no federal law that expressly prohibits obesity discrimination, but plaintiff employees have brought obesity-related discrimination claims under the ADA with varying degrees of success.  The ADA generally prohibits discrimination against employees with physical or mental disabilities.  Additionally, the ADA requires employers to make “reasonable accommodations” for their disabled employees to perform their duties as long as such an accommodation does not impose an undue hardship on the employer.  Federal courts have waivered on whether obesity is a recognized disability under the ADA.  Several courts have held that obesity is not a disability under the ADA.  Other courts have held that, to constitute an ADA impairment, an employee’s obesity must be the result of a physiological condition.  A few courts have held that severe obesity is a disability under the ADA even without proof of a physiological basis.

Although the AMA’s new policy is not legally binding, it may prompt more courts to recognize “obesity” as a disability under the ADA.  According to the Center for Disease Control and Prevention (CDC), approximately one-third of American adults are “obese.”  Consequently, the number of ADA claims brought by employees against their employers for obesity-related discrimination may increase dramatically.  Employers facing liability for these claims may seek insurance coverage under an employment practices liability (EPL) insurance policy.  An EPL policy generally affords coverage for claims brought by employees alleging wrongful employment acts, including discrimination, wrongful termination, retaliation, or sexual harassment subject to the terms and exclusions of the policy.  Accordingly, a standard form EPL policy may provide coverage for obesity-related claims of discrimination brought by employees.

Sedgwick Attorneys
Sedgwick’s insurance attorneys regularly present to clients and other industry professionals on a wide range of topics. For a complete list of our attorneys, click here.
Our Firm
The most complex and high-stakes legal challenges facing the insurance industry demand the highest level of expertise and commitment, delivered by a coordinated team across all areas of insurance law. We deliver a personal, partner-led service to achieve the resolution of international and domestic liability and insurance business issues that are sensitive to the relationship between insurers, insureds and brokers, read more.

Search
Subscribe
Subscribe via RSS Feed
Receive email updates: