The First Wave of Decisions Interpreting Employment Practices Liability Policies by Barbara A

The First Wave of Decisions Interpreting Employment Practices Liability Policies By Barbara A. O’Donnell

ou are in-house counsel for a manufacturing company with a national sales and distribution force aided by more than 150 employees and independent contractors. Over the past 20 years, the Y company has grown from a small operation, manufacturing only one product, to a midsize company offering a wide range of cus- tomized widgets. Today, Susan Brown, the vice president of sales, submitted a letter of resignation. In it, Susan claims that she has been forced to leave because the recently hired CFO has been “edging her out” by shifting several of her key responsibilities to Joe, the regional sales director who accompanied the CFO when he joined the company, and by excluding her from strategic decisions and important client meetings. Susan insists that the CFO embarked on his efforts to force her out after she complained about his imple- mentation of what she views as questionable accounting practices. Susan also claims that the new bonus structure, implemented about a year ago, violates the incentive compensation terms contained in the employment contract she signed in 1991, when she first joined the company. The president of the company is concerned that Susan will sue. He wants you to investigate and line up supporting witnesses. He also wants to know if the company has insurance coverage for her suit. What do you tell him?

Variants on this situation have heightened risks that small and quate when applied against the become increasingly prevalent over large companies now face. Before broad range of claims and damages recent years. An explosion of the arrival of EPL, employers sought in employment practices employment practices liability sought coverage under their exist- claims. Designed to fill the gaps claims—presenting some combina- ing general liability insurance, left by other types of coverage, EPL tion of the constructive discharge, directors and officers liability policies provide employers with a whistle-blower, retaliation, dis- insurance (D&O), workers’ com- broad range of defense and indem- crimination, contract, and statu- pensation, and employer’s liability nification coverage for the most tory claims alluded to above—led policies for protection against prevalent types of discrimination, the insurance industry to develop employee suits. More often than retaliation, and wrongful discharge employment practices liability not, these traditional sources of claims brought under common-law insurance (EPL) to meet the insurance coverage proved inade- and statutory theories, subject to

Volume 35 • Number 1 • Fall 2005 • American Bar Association • The Brief “The First Wave of Decisions Interpreting Employment Practices Liability Policies” by Barbara A. O’Donnell, published in The Brief, Volume 35, No. 1, Fall 2005 © 2005 by the American Bar Association. Reproduced by permission. All rights reserved. This information or any portion 1 thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association. potential exclusions for certain the company delayed in providing comprehensive protections or an types of relief, such as punitive notice of Susan’s claim, perhaps endorsement to D&O or other pol- damages, fines, or penalties. because it wanted to negotiate a sep- icy forms that may offer more Over the past decade, more and aration agreement with her? What if restricted coverages. Businesses more employers have added EPL to the company knew of the potential whose employees frequently deal their insurance portfolio. The exposure to claims arising out of its with third parties, including cus- increasing reliance on EPL appears accounting practices when it tomers or vendors, outside of the justified. The Equal Employment and applied for EPL but replied “none” workplace can purchase third-party Opportunity Commission (EEOC) when asked in the insurance appli- endorsements that extend EPL reports that it received 79,432 new cation to disclose any circumstances coverages to harassment or other Title VII, Americans with that might be reasonably expected claims arising out of the employees’ Disabilities Act, Age Discrimination to give rise to claims. As with any interactions with these third par- in Employment Act, and Equal Pay other form of insurance, disputes ties. Companies that depend on Act charges in fiscal year 20041 and over the scope and meaning of EPL nontraditional workers, such as awarded monetary benefits totaling policy provisions and exclusions are independent contractors or con- $168.1 million during that year.2 inevitable. Because EPL insurance sultants, need to make sure their Even though EPL has gained wide- remains relatively new, however, policy encompasses claims by and spread use, the policy forms continue courts and practitioners have had to against these persons. to vary in important respects with rely on decisions concerning other Given these variations, it is not the result that employers and their types of policy forms when address- surprising that several EPL deci- advisors must carefully review the ing disputes under EPL policies. sions concern disputes over the EPL policy in conjunction with any With EPL insurance now gain- scope of the basic coverage grant other sources of insurance to ensure ing widespread use by companies of or insuring clause in the applicable that coverage for the specific types of all sizes across a host of industries, policy form. The dispute in Peoples risks faced by that business is as com- courts are starting to adjudicate Mortgage Corp. v. Kansas Bankers prehensive as possible. disputes under these types of poli- Surety Co.3 concerned an EPL pol- In the scenario above, for exam- cies. By reviewing these decisions, icy purchased in 1999 that covered ple, the company’s EPL policy would employers, their counsel, and risk related banking entities in Kansas, probably provide defense and managers can gain useful insights Colorado, and New Mexico. The indemnification coverage for any into important ways to avoid sig- policy’s liability limit was $250,000 retaliation, constructive discharge, nificant coverage gaps and maxi- for all loss, including defense costs. whistle-blowing, and gender dis- mize the protections offered by Using novel language drafted by crimination claims but might not EPL policies. While there may be the insurance company president cover the contract claim, depending no surprises in the emerging body and vice president, the policy on whether the EPL policy contains of EPL decisions for those familiar stated that the insurer would a common exclusion for breach of with coverage doctrines developed defend and indemnify the bank contract claims. Even if coverage through judicial interpretation of “for up to a maximum of one year was available for the range of claims D&O or other types of wrongful of claimant’s salary which the posed by this scenario, the policy act or errors and omissions policies, Bank is legally obligated to pay by might contain limitations on the it is useful to examine how courts reason of any actual or alleged type of relief covered and might apply these concepts when inter- Wrongful Act arising out of the exclude (or provide sublimits for) an preting EPL policy terms, condi- Employment Claim first filed award of punitive damages. What if tions, and exclusions. against the Bank during the Policy Susan sought to recover the value of Period.”4 The policy defined stock options? How would coverage Basic EPL Insuring “employment claim” to include vary if the claims were brought by, Clause Disputes civil or arbitration proceedings or against, an independent contrac- Insurers offer a wide range of EPL brought by past or present employ- tor rather than an employee? What products, with options to purchase ees for any wrongful act, as obligations would the insurer have if a stand-alone policy offering more defined, in connection with an

Volume 35 • Number 1 • Fall 2005 • American Bar Association • The Brief “The First Wave of Decisions Interpreting Employment Practices Liability Policies” by Barbara A. O’Donnell, published in The Brief, Volume 2 35, No. 1, Fall 2005 © 2005 by the American Bar Association. Reproduced by permission. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association. actual or alleged wrongful dis- salary.6 In reaching this conclusion, implied covenant of good faith and missal, breach of a verbal or writ- the court noted that the policy also fair dealing, as well as for breach of ten employment contract, afforded coverage for claims the contract; and (2) the award workplace harassment, failure to brought by former employees and included damages for stock options promote, or wrongful discipline. applicants, and explained that granted to the employee in a para- The bank sought coverage for damages awarded to those graph of his employment agree- $175,000 paid to settle a lawsuit claimants could never be “compen- ment that was separate from the brought by a former employee, sation for services rendered,” provisions addressing his annual Gomez, who sought to recover which was what the bank con- salary. Affirming summary judg- approximately $329,000 owed tended was meant by salary.7 The ment for the insurer, the Ninth under an alleged employment court also rejected the insurer’s Circuit Court of Appeals held that agreement that allowed him to contention that the policy at most the policy unambiguously excluded recover 150 percent of his taxable covered the payment of Gomez’s coverage for the arbitrator’s award income for the preceding year. $40,000 base salary and not the because it awarded damages proxi- While employed, Gomez had additional amounts paid in the set- mately caused by breach of the received a $40,000 annual salary tlement for commission income. In employment agreement irrespec- and commissions. The insurance so holding, the court agreed that tive of whether TVN was also held company defended the bank under the term “salary” was ambiguous liable on a noncontract theory.12 a reservation of rights. When the and could reasonably be read to The court held that the award of claim settled for $175,000, the include commissions and other stock options was in any event insurance company refused to con- taxable forms of income.8 encompassed by the policy’s exclu- tribute more than $10,000, based The failure to define terms sion of bonuses, profit sharing, or on its assertion that the policy did clearly in the basic insuring clause benefits awarded pursuant to a not cover contractual obligations was also the source of the dispute in contract of employment. to make termination payments and TVN Entertainment Corp. v. General The dissent took the position in any event limited coverage to Star Indemnity Co.9 The EPL policy that the policy’s exclusion for one year of Gomez’s base salary. at issue in TVN covered losses sus- express agreements was limited to Affirming the trial court, the tained because of “wrongful em- contract provisions targeted at pay- Tenth Circuit Court of Appeals ployment acts” such as discrimina- ments made “in event of termina- directed the insurer to pay all of tion, defamation, harassment, and tion,” such as severance pay, the bank’s settlement costs as well breach of implied employment con- golden parachutes, and the like, as its attorney fees in the coverage tracts. However, the policy ex- and did not include the employee’s action, pursuant to a Kansas cluded coverage for (1) damages separate contractual entitlement to statute that permits a court to determined to be owing under writ- stock options.13 While disagreeing award attorney fees if an insurer ten or express employment con- that the policy excluded coverage refuses to pay a claim without just tracts and (2) losses in the form of for the contract claim, the dissent cause or excuse.5 “commissions, bonuses, profit shar- agreed that the damages awarded Rejecting the insurer’s position ing or benefits pursuant to a con- for the stock options were that coverage was not available tract of employment.”10 excluded but deemed them a form because the amount paid to Gomez An employee terminated by of benefits rather than profit shar- represented a termination payment TVN recovered an arbitration ing. Consequently, the dissent rather than “salary” for services award entitling him to approxi- would have directed the insurer to rendered, the Tenth Circuit held mately $13,000,000 in damages indemnify TVN for the portion of that the policy language calling for “proximately caused by [TVN’s] the arbitrator’s award that did not the insurer to indemnify the bank breach of the Employment relate to stock options.14 for “up to a maximum of one year Agreement.”11 TVN argued that In a recent decision that under- of claimant’s salary” established a coverage was available for the arbi- scores how important it is to care- limit on liability and did not trator’s award because (1) liability fully review the policy in its restrict coverage to claims for was imposed for breach of the entirety, the Fifth Circuit Court of

Volume 35 • Number 1 • Fall 2005 • American Bar Association • The Brief “The First Wave of Decisions Interpreting Employment Practices Liability Policies” by Barbara A. O’Donnell, published in The Brief, Volume 35, No. 1, Fall 2005 © 2005 by the American Bar Association. Reproduced by permission. All rights reserved. This information or any portion 3 thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association. Appeals in Coleman v. School Board action also asserted claims for the corner rule,” which limits the of Richland Parish,15 interpreted con- school board’s vicarious liability defense determination to a compari- flicting provisions in an educator’s and civil rights, which did not son of the policy against the com- legal liability policy that affirma- require a showing of intent or plaint, the court held that the tively afforded coverage for discrim- knowing wrongdoing.17 The Fifth second amended petition was ination, harassment, and breach of Circuit remanded for a determina- brought by claimants within the employment contracts in the definition as to whether any portion of scope of this policy because the inde- tion of “wrongful act” but excluded the board’s settlement of the pendent contractors now contended coverage for wrongful acts commit- underlying action could be appor- that they qualified as employees. ted with actual knowledge of their tioned to the covered claims and The trial court went on to con- wrongful nature or with the intent for a determination of the board’s clude, however, that the claims to cause damage. The insured covered defense costs. asserted did not allege any “wrong- school board sued when the insurer In Andrews Transport, Inc. v. ful employment decisions” within refused to defend or indemnify it CNA Reinsurance Co., Ltd.,18 the the scope of the policy’s basic against an action brought by a for- insured sought a declaration that insuring clause because the peti- mer employee alleging race discrim- CNA owed it defense coverage tion did not concern decisions to ination, breach of employment against a class action brought by “employ, terminate, evaluate, disci- contract, and abuse of rights. truck drivers alleging that Andrews pline, promote or demote,” or con- Relying on decisions addressing wrongfully withheld state and fed- cern a “breach of an implied other types of policies, the insured eral taxes and unemployment insur- employment contract [or] breach argued that its reasonable expecta- ance deductions from their checks. of the covenant of good faith and tions of coverage would be The EPL policy issued by CNA in fair dealing in the employment defeated if the insurer was allowed 1998 afforded coverage for “Loss contract.”21 While the petition to deny coverage when the policy amounts on . . . account of a Claim alleged that Andrews Transport affirmatively afforded coverage for by a Claimant because of an Insured violated “a special relationship” discrimination and breach of con- Event to which this Policy applies.” that the parties enjoyed because of tract, which are both inherently The policy defined “claimant” as a their truck leasing agreements, the intent based, by relying on the “current or former Employee” with court held that this did not trigger inconsistent exclusion for inten- “employee” defined as “individual[s] application of the EPL policy tional acts. The Fifth Circuit held whose labor or service is engaged by because it did not concern an that the exclusion was enforceable and directed by an insured entity,” employment contract and Texas and unambiguous because it did including “[i]ndependent contrac- does not recognize a duty of good not completely negate the cover- tors who claim to be an Employee.” faith and fair dealing in the age provided in the basic insuring The initial and a first amended class employment context. The court clause.16 It observed that claims for action petition sought to certify a also rejected the insured’s con- disparate impact would still be cov- class of “independent truck drivers.” tention that the plaintiffs’ claims ered under the policy. The Fifth A second amended petition asserted for the allegedly wrongful with- Circuit also relied on Louisiana that the class members were holding of payroll taxes and unem- public policy against affording “employees—not independent con- ployment insurance deductions fell insurance for intentional wrongdo- tractors after all.”19 within the policy’s coverage for ing to support its decision to Faced with these inconsistent “other employment decisions enforce the policy exclusion. allegations, the trial court held which violate public policy.”22 After concluding that the that CNA did not owe Andrews On appeal, the Fifth Circuit intentional acts exclusion defeated Transport a defense as to the initial held in Andrews Transport v. CNA coverage for the discrimination and first amended petition because Reinsurance Company, Ltd.23 that and breach of contract claims, the the independent contractor the initial, as well as the amended, Fifth Circuit held that the insurer claimants did not assert in those petition stated a potentially cov- had nonetheless breached its duty petitions that they qualified as ered claim because the plaintiffs to defend because the underlying employees.20 Applying Texas’s “eight alleged in the alternative, in the

Volume 35 • Number 1 • Fall 2005 • American Bar Association • The Brief “The First Wave of Decisions Interpreting Employment Practices Liability Policies” by Barbara A. O’Donnell, published in The Brief, Volume 4 35, No. 1, Fall 2005 © 2005 by the American Bar Association. Reproduced by permission. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association. first petition, that even if they employment act under the relevant ment and the plaintiff’s resignation were deemed employees rather EPL policy provisions.25 The policy were governed by the D&O or EPL than independent contractors, defined “wrongful employment act” portion of a multipart policy. they still were not subject to the as either the “refusal to employ,” the Coverage under the EPL portion payroll withholdings claimed by “termination of employment,” or was subject to satisfaction of a the defendant. The inclusion of “coercion, demotion, evaluation, $1,000,000 retention. The D&O this alternative, albeit inconsis- reassignment, discipline, defama- coverage part was not subject to a tent, allegation meant that the tion, harassment, humiliation, dis- retention. The insurer argued that plaintiffs in the underlying allega- crimination or other employment- because the plaintiff’s claims impli- tion could potentially satisfy the related practices, policies, acts or cated multiple coverage sections of policy’s “claimant” definition. omission.” The court held that even the policy, the insureds had to sat- The Fifth Circuit also held that if the FLSA claims were deemed to isfy the highest single retention, the trial court erred in concluding assert wrongful acts or wrongful namely, the $1,000,000 retention that the underlying claims did not employment acts, the policy’s exclu- under the EPL part. The court qualify as potentially covered sion for back wages, overtime, or concluded that although the plain- wrongful employment decisions future wages would in any event tiff’s claims appeared to implicate because the reference in that pol- preclude coverage for the plaintiffs’ both coverage parts, only the icy definition to “other employ- claims. In so holding, the court D&O portion provided “actual ment decisions which violate rejected the insured’s contention coverage,” with the result that the public policy” was broad and vague that the exclusion only applied to “applicable retention in this case is enough to include the employer’s the actual award of overtime under zero.”29 In reaching this conclusion, allegedly wrongful decision to the FLSA and did not defeat cover- the court pointed to an exclusion claim the payroll withholdings.It age for any award of penalties or in the EPL part that precluded did not matter that Texas law did attorney fees under the Act.26 coverage for “that portion of Loss not recognize a separate cause of Upon concluding that coverage which is covered under any other action for public policy violations was not afforded for the plaintiffs’ Coverage Section of this Policy.” because the policy only required claims, the court disposed of the Because the D&O part provided that the underlying complaint insured’s claim that the insurer coverage for any claims also cov- allege employment decisions that acted in bad faith by denying its ered under the EPL part, the exclu- violate public policy, irrespective claim without conducting an ade- sion was implicated, eliminating of whether those allegations stated quate investigation into the poten- coverage under the EPL part. a viable legal theory for recovery. tial availability of coverage. As the A dispute over the wrongful act court noted, the insurer retained Late Notice Defenses and provisions in an EPL policy was also outside coverage counsel to evalu- Reporting Requirements resolved in favor of the insurer in ate its initial determination of no In contrast to the preceding deci- Noxubee County School District v. coverage after the school district sions that concern the scope of United National Insurance Co.24 In had challenged its denial and then particular EPL insuring clause pro- Noxubee, the insured school district acted properly by timely advising visions, the decisions regarding late was sued by over 100 current and the insured of its decision to stand notice and reporting requirements former employees seeking overtime by its initial denial of coverage.27 present issues that frequently arise pay allegedly owed under the Fair While not presenting a dispute under a wide range of policy types. Labor Standards Act (FLSA), with over the scope of the basic EPL It is nonetheless useful to see how statutory penalties and attorney insuring clause, the decision of these common problems arise in fees. Affirming summary judgment Steinberg v. Syndicate 212 at Lloyd’s the EPL context. for the insurer, the court held that of London28 is interesting because In JanJer Enterprises, Inc. v. the school district’s “deliberate deci- the court had to decide whether Executive Risk Indemnity Inc.,30 the sion not to compensate its employ- claims against company directors court, applying Maryland law, ees for overtime pay” did not qualify concerning alleged wrongdoing affirmed summary judgment for the as a wrongful act or wrongful concerning a shareholders agree- insurer based on the insured’s fail-

Volume 35 • Number 1 • Fall 2005 • American Bar Association • The Brief “The First Wave of Decisions Interpreting Employment Practices Liability Policies” by Barbara A. O’Donnell, published in The Brief, Volume 35, No. 1, Fall 2005 © 2005 by the American Bar Association. Reproduced by permission. All rights reserved. This information or any portion 5 thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association. ure to provide its vice president of that it was prejudiced by the insurers also asserted a claim for claims with written notice of its insured’s noncompliance with the rescission based on the failure to receipt of a sexual harassment suit policy’s reporting requirements. disclose the change of circum- as “soon as practicable or no later The court rejected this argument, stances in the renewal application. than sixty days” after the claim was holding that compliance with the In granting the insurers summary first made. In rejecting the reporting requirements in a claims- judgment, the court held that the insured’s argument that the insurer made policy is a condition prece- notice and reporting requirements was required by Maryland law to dent to coverage.35 in claims-made policies are condi- show prejudice to deny coverage The dispute in Williams & tions precedent to coverage for two based on a late notice defense, the Montgomery stemmed from the law basic reasons. First, the notice pro- Fourth Circuit Court of Appeals firm’s discharge of four nonequity vision in a claims-made policy emphasized that the policy partners and one equity partner in allows the insurer to conduct a “expressly stated that compliance March 1999. By letter dated April prompt and thorough investigation. with the notification of claim pro- 1, 1999, the partners challenged Second, and “more importantly, vision was a strict condition prece- their discharge and demanded cer- strict adherence to expiration dates dent to coverage.”31 tain moneys allegedly owed. On preserves an insurance carrier’s The determination that the EPL April 7, 1999, the Chicago Daily ability to set rates without ‘having policy applied to claims first made Law Bulletin published an article to consider the possibilities of infla- and reported during the policy about the firings in which the part- tion beyond the policy period, period meant that the dispute was ners were quoted as saying they upward-spiraling jury awards, or not governed by Maryland Insurance were owed bonuses and compensa- later changes in the definition and Code section 19-110, which pre- tion. Shortly thereafter, the law application of negligence.’”36 Under vents insurers from denying coverage firm submitted its application for Illinois law, as with many jurisdic- based on late notice under liability the renewal of its EPL policy for tions, a “showing of prejudice is insurance policies unless the insurer the period commencing on May 3, only required in instances involv- can establish actual prejudice from 1999. The firm did not notify its ing an occurrence policy.”37 the late notice.32 insurers of the partners’ demand The law firm’s argument that The court held that the insured’s before submitting the application there was no claim against it until identification of the pending EEOC and responded in the negative the partners filed their lawsuit, claim on a policy renewal applica- when asked in the renewal applica- because the letters should be tion did not satisfy the policy’s tion if there had been any change regarded as “negotiations regarding reporting requirement because it in the status of any EPL claims or the payment of certain bonuses” was submitted to an agent at circumstances other than reported for which judgment could not be Executive Risk, not to the vice to the insurer following the sub- granted, was rejected as “unreason- president of claims, as specified in mission of the application for the able, unrealistic and the policy. The court noted that preceding year’s policy. On April unpersuasive.”38 In addition to “[s]uch a requirement is aimed at 29, 1999, the terminated partners declaring the three presuit letters preventing ‘an insured from insist- sent another written demand letter “claims” under the policy, the ing that an insurer’s underwriting that the firm admitted was court held that the article publiciz- department sift through a renewal received before the May 3 incep- ing the dispute also qualified as a application and decide what should tion date of the renewal policy. In claim because it contained quotes be forwarded to the claims depart- June 1999, the discharged partners from the partners regarding their ment on the insured’s behalf.’”33 filed two lawsuits. The firm did not demand for compensation. As the The insured law firm in St. Paul report either of these suits until court observed, even after the law- Reinsurance Co. v. Williams & October 15, 1999. suits were filed, the firm waited Montgomery, Ltd.34 also argued that Not surprisingly, the insurers more than two and a half months its EPL insurers could not rely on a denied coverage based on the firm’s to notify its EPL insurers of the lit- late notice defense to deny cover- breach of the policy’s notice and igation. As discussed further below, age unless it could demonstrate claim reporting requirements. The the court held that the insurers

Volume 35 • Number 1 • Fall 2005 • American Bar Association • The Brief “The First Wave of Decisions Interpreting Employment Practices Liability Policies” by Barbara A. O’Donnell, published in The Brief, Volume 6 35, No. 1, Fall 2005 © 2005 by the American Bar Association. Reproduced by permission. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association. were also entitled to rely on rescis- under the first policy, Clarendon ered losses sustained because of sion grounds to deny coverage Insurance Company, to obtain “wrongful employment acts,” based on the failure to disclose the summary judgment. As noted fur- including the breach of implied change of circumstances in the ther below, the second EPL insurer employment contracts, but renewal application.39 was entitled to deny coverage excluded coverage for damages Underscoring the importance of because of a breach of written con- owed under written or express carefully examining the applicable tract exclusion in its policy. employment contracts. The court policy language, an insured was able An insured’s failure to notify held that the exclusion regarding to obtain coverage for a $400,000 its insurer of an administrative written or express employment judgment entered in a sexual agency claim also entitled its EPL contracts unambiguously allowed harassment lawsuit filed during its insurer to obtain summary judg- the insurer to deny coverage for 1999–2000 policy period despite its ment for breach of the policy’s the arbitrator’s award of approxi- failure to notify its EPL insurer of claims reporting requirements in mately $13,000,000 in damages the preceding EEOC claim received Specialty Foods Systems, Inc. v. “proximately caused by breach of during a prior policy period in Reliance Insurance Co.44 the employment agreement” Lodgenet Entertainment Corp. v. notwithstanding the fact that the American International Speciality Specific EPL Policy arbitrator amended his decision to Lines Insurance Co.40 Two reasons Exclusion Disputes also impose liability on TVN for accounted for this differing result. To date, EPL coverage disputes breach of the implied covenant of First, the policy lacked the custom- have addressed the following types good faith and fair dealing. This ary provision that designates all of exclusions that are prevalent in modification did not allow the claims arising out of the same or EPL and other types of policies. insured to obtain coverage because related employment practices a sin- Coming years will no doubt gener- the award was still for damages gle claim received at the time of the ate decisions addressing other typi- proximately caused by the breach initial claim.41 The court also cal EPL exclusions and restrictions, of the written agreement. pointed to other policy language including provisions that deny or In contrast, in CIM Insurance that supported its conclusion that restrict coverage for knowing vio- Corp. v. Mid Pac Auto Center, Inc.46 the EEOC claim and the ensuing lations of law (public policy exclu- coverage was precluded for the lawsuit could be treated as separate sions), provisions that exclude or plaintiff’s wrongful termination claims, such that the insured com- establish reduced sublimits for claim because it arose out of a writ- plied with the reporting require- punitive damages, and provisions ten employment agreement. The ments by providing notice of the that exclude coverage for costs EPL policy provided coverage for lawsuit during the policy period. associated with providing accom- certain “wrongful employment Second, the renewal application modations or training, as well as practices,” which was defined to “did not ask any questions regarding claims that fall within workers’ include claims for breach of an whether there was a change in the compensation or other non-EPL implied agreement but expressly risk insured, or whether LodgeNet policies. Meanwhile, the following excluded coverage for “damages was aware of any facts which may decisions shed light on important arising out of the breach of an lead to administrative or civil pro- EPL exclusions. express written or oral contract of ceedings.”42 Consequently, the EPL Breach of contract exclusions. employment or an express obliga- insurer could not rely on rescission The treatment of claims for breach tion to pay monies, including or misrepresentation grounds to of express and implied employment bonuses, in the event of termina- deny coverage. agreements is one of the primary tion of employment.” In CIM Insurance Corp. v. areas in which EPL policies vary In Peoples Mortgage Corp. v. MidPac Auto Center, Inc.,43 the widely, leading to divergent results Kansas Bankers Surety Co.,47 an insured’s failure to comply with the in coverage disputes. EPL policy that broadly defined reporting requirements in the first As noted above, in TVN “employment claims” to include of two EPL policies issued by sepa- Entertainment Corp. v. General Star claims for breach of a verbal or rate companies allowed the insurer Indemnity Co.45 the EPL policy cov- written employment contract

Volume 35 • Number 1 • Fall 2005 • American Bar Association • The Brief “The First Wave of Decisions Interpreting Employment Practices Liability Policies” by Barbara A. O’Donnell, published in The Brief, Volume 35, No. 1, Fall 2005 © 2005 by the American Bar Association. Reproduced by permission. All rights reserved. This information or any portion 7 thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association. obliged the insurer to indemnify its Amounts owed for unpaid biguously excluded coverage for insured for $175,000 paid to settle wages and FLSA violations. The the unpaid wages sought by the claims under a written employ- Big 5 decision is interesting not plaintiffs. ment agreement. only because the trial court Underscoring an important dis- As noted above, insurers that enforced EPL provisions that tinction between EPL provisions exclude claims or damages for stated that (1) “loss” does not that provide defense cost reimburse- breach of express or written agree- include claims made under the ment for covered claims and the ments do so with the view that an FLSA or similar federal, state, or broader duty-to-defend provisions insured should not be permitted to local laws, and (2) “employment contained in general liability (and gain coverage for contractual obliga- claims” do not include the pay- some types of EPL policies), the tions assumed in the course of rou- ment of wages to former employ- trial court held that Big 5 was not tine business operations. Companies ees, but also because it held that entitled to recover the legal fees it need to consider whether they want amounts paid for wrongly withheld incurred in defending against the to negotiate and pay for the added wages constitute restitutionary employees’ claims because the rele- protection that follows from includ- relief and/or the disgorgement of vant EPL provisions only required ing claims for breach of written and wrongfully withheld benefits that the insurer to “reimburse Big 5 for implied employment agreements in does not qualify as an insurable loss defense costs incurred as an ingredi- the definition of “covered employ- or damages in any event. ent of a covered ‘loss.’”53 ment claims.” Specifically, after holding that In Noxubee County School Fines and penalties. EPL poli- amounts paid to settle the employ- District v. United National Insurance cies, like most other policy forms, ees’ claims for withheld wages were Co.,54 the insurer also prevailed on typically contain exclusions for excluded under the policy’s defini- its argument that an employer’s fines and penalties. Courts readily tion of “employment claims” and “deliberate decision not to compen- enforce these exclusions on the “loss,” the trial court held that a sate its employees for overtime pay” view that it would defeat public “claim for restitution of wages is did not qualify as a “wrongful act” policy to allow a wrongdoer to not covered by the policy” in any or “wrongful employment act” obtain insurance against statutorily event because “[d]amages within under the relevant EPL policy pro- imposed fines or penalties. In Big 5 the meaning of an insurance con- visions. The court held that even if Corp. v. Gulf Underwriters Insurance tract do not include the restoration the plaintiffs’ FLSA claims were Co.,48 the court held that an EPL of an ill-gotten gain.”50 In so hold- deemed to assert wrongful acts or insurer was entitled to rely on the ing, the court relied on Bank of the wrongful employment acts, the pol- policy’s exclusion for “criminal or West v. Superior Court,51 and Cortez icy’s unambiguous exclusion for civil fines or penalties imposed by v. Purolater Air Filtration Products claims seeking “back wages, over- law” in denying coverage for Co.52 In Cortez, the California time or future wages (even if desig- approximately $2,750,000 paid by Supreme Court held that the pay- nated as liquidated damages) or an employer to settle claims ment of unlawfully withheld wages arising from collective bargaining brought under the state wage code is restitutionary relief that does not agreements” defeated coverage in seeking, inter alia, penalties for the qualify as the payment of damages any event.55 In so holding, the court wrongful withholding of wages. within the meaning of a policy. rejected the insured’s contention Perhaps signifying the widespread Because Big 5 could not demon- that the exclusion only applied to recognition of the enforceability of strate that the settlement payment the actual award of overtime under this type of exclusion, the insured included any compensatory dam- the FLSA and did not encompass did not dispute that “statutory ages beyond the return of withheld the award of penalties or attorney penalties are not recoverable under wages, it was not entitled to cover- fees under the FLSA. the Policy” but instead focused its age. As noted above, the Ninth Prior acts or retroactive date. efforts on seeking coverage for the Circuit did not address this issue EPL policies, like most types of portion of the settlement attributa- on appeal, when affirming sum- errors and omissions or wrongful ble to the payment of withheld mary judgment for the insurer on act policies, frequently restrict cov- wages, as noted below.49 the ground that the policy unam- erage to claims asserted during the

Volume 35 • Number 1 • Fall 2005 • American Bar Association • The Brief “The First Wave of Decisions Interpreting Employment Practices Liability Policies” by Barbara A. O’Donnell, published in The Brief, Volume 8 35, No. 1, Fall 2005 © 2005 by the American Bar Association. Reproduced by permission. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association. policy period that concern conduct ance. BKM held an EPL policy cent per year. The Orange County postdating a designated retroactive with Pacific Insurance Company Superior Court granted Hartford the date in the policy. Insurers often for the period from August 2, 1999, relief sought on summary judgment. insist on this type of provision to August 2, 2000. In January The California Court of Appeal when taking over for another 2000, BKM received an EEOC affirmed. In rejecting BKM’s con- insurer or when writing coverage notice of a disability discrimina- tention that Hartford waited too that incepts after a period in which tion charge filed by Hipsky. In May long to seek rescission, the court the insured had no equivalent cov- 2000, BKM received a racial dis- held that “this is not a simple case of erage. These provisions can give crimination and retaliation claim the ‘late tender’ of a claim where an rise to disputes over whether a filed by another employee, insured failed to promptly notify an claim arises out of or concerns con- Giugliano, with the EEOC and insurer of a claim made during the duct that commenced before or California Fair Employment policy period.”60 after the relevant retroactive date. Department. BKM did not report An Illinois court granted an EPL In Schultze, DDS v. Continental either claim to Pacific Insurance. insurer summary judgment on its Insurance Co.,56 an EPL insurer was In June 2000, BKM completed an rescission claims in St. Paul required to defend its insured application seeking renewal EPL Reinsurance Co. v Williams & against defamation, sexual harass- coverage through Hartford.58 BKM Montgomery, Ltd.61 in addition to ment, and wrongful discharge did not disclose either claim holding the insurer entitled to deny claims because the defamation despite broad questions in the coverage on late notice grounds. As claim involved conduct after the application seeking information noted above regarding the late policy’s prior acts inception date regarding any pending claim notice and reporting requirements, and the duty to defend that claim and/or awareness of any “fact or the law firm failed to notify its EPL obliged the insurer to defend the circumstance or any actual or insurer that it had received demand entire lawsuit. This holding again alleged act, error or omission letters concerning its discharge of underscores the difference between which might give rise to a claim four nonequity and one equity part- EPL policies written on a duty-to- that would fall within the scope of ner before May 1999, when its defend as opposed to a duty-to- the proposed coverage.”59 1998–99 EPL policy expired and its reimburse basis because the latter Relying on the application, renewal 1999–2000 policy com- form may only have required the Hartford issued a renewal EPL pol- menced. After holding that the insurer to pay the legal fees attrib- icy for the period from August 2, breach of the reporting require- utable to the covered claim. 2000, through August 2, 2001. ments defeated coverage under both Before learning of the nondisclo- policies, the court held that the Rescission Claims sures, Hartford paid approximately firm’s failure to disclose its receipt of Given the heightened awareness of $221,000 in defense costs on the the demand letters and its aware- potential grounds for rescinding or Giugliano claim and approximately ness of changes in circumstances denying coverage based on misrep- $19,000 on the Hipsky claim, as that could give rise to claims consti- resentations in the application well as $266,501 in the defense of tuted a material misrepresentation process, courts have also been asked other claims brought against BKM that permitted the insurer to to determine whether grounds exist during the renewal policy period. rescind the latter policy. 62 to rescind EPL policies. After learning of the nondisclosures, The court explained that Illinois Hartford Insurance Co. of Illinois Hartford filed a declaratory judg- law permits rescission when an v. BKM Enterprises, Inc.57 demon- ment action seeking to rescind the insured’s misrepresentation is “made strates the significant rescission policy retroactive to its inception with the actual intent to deceive or remedies an EPL insurer can date, to withdraw from participating materially affects either the accept- obtain when an insured fails to dis- in the defense of any claim for ance of the risk or the hazard close pending claims or circum- which coverage was sought, and to assumed by the company.”63 As with stances that could reasonably be recover all amounts paid under the many other jurisdictions, Illinois construed to give rise to potential policy, less premiums, plus prejudg- courts treat the “failure to disclose claims in the application for insur- ment interest at the rate of 10 per- material information in response to

Volume 35 • Number 1 • Fall 2005 • American Bar Association • The Brief “The First Wave of Decisions Interpreting Employment Practices Liability Policies” by Barbara A. O’Donnell, published in The Brief, Volume 35, No. 1, Fall 2005 © 2005 by the American Bar Association. Reproduced by permission. All rights reserved. This information or any portion 9 thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association. a question in an insurance applica- questions regarding whether there U.S. Risk’s claim for rescission, the tion [as] a material misrepresenta- was a change in the risk insured, or court observed that the “crux of the tion” as a matter of law.64 In holding whether LodgeNet was aware of any litigation” turned on the question of that the law firm “violated its good facts which may lead to administra- whether IBIS served as an agent for faith duty requirement to disclose tive or civil proceedings.”67 CFC or for U.S. Risk. Concluding all relevant facts which may affect In evaluating the bases for a that IBIS served as a soliciting agent its policy terms,” the court observed potential rescission claim, it is for U.S. Risk, the court held that that an “applicant cannot pick and important to also consider informa- IBIS’s knowledge of the SSB dis- choose what to tell his insurer, or tion the insurer may have by reason charges precluded rescission because take it upon itself to determine of information given to its agents or U.S. Risk was charged with IBIS’s whether the information it holds provided through other sources. In knowledge and therefore could not regarding a change in circumstances St. Paul Reinsurance Co., Ltd. v. prove that it justifiably relied on or conditions that may lead to a Commercial Financial Corp.,68 CFC’s alleged failure to disclose the future claim are material. . . . It is London Market insurers sought to SSB discharges when it added SSB the insurer’s responsibility to sift rescind an EPL policy issued to to its EPL policy.69 through an applicant’s responses Commercial Financial Corporation and make that determination on its (CFC) because of its alleged failure Reformation and/or own.”65 Given the materiality of the to disclose its October 1999 termi- Negligent Misrepresentation misrepresentation, the court did not nation of three employees of a In an interesting contrast to the need to determine whether the recently acquired bank, Security rescission claims, the court in nondisclosure was intentional or State Bank (SSB). IBIS, a soliciting Asbury Automotive Group LLC v. evaluate the insured’s reasons for agent for the London Market insur- Chrysler Insurance Co.70 denied an omitting the requested information. ers, aided CFC in completing its insurer’s motion to dismiss the When policies are renewed with- application for an EPL renewal pol- insured’s claim that it fraudulently out requiring that the insured submit icy. When the application was being and negligently misrepresented a renewal application or without completed, CFC was not seeking that an excess umbrella policy pro- seeking detailed information on EPL coverage for SSB from the vided EPL coverages equivalent to renewal, courts view rescission London Market because it intended those provided in the underlying claims with much more skepticism. to obtain a separate policy for SSB primary policy. The insurer moved The decision of Lodgenet and CFC through Executive Risk to dismiss on the ground that the Entertainment Corp. v. American Indemnity Insurance. CFC told fraud and negligent misrepresenta- International Specialty Lines Insurance IBIS of the discharge of the SSB tion claims were inconsistent with Co.66 is instructive in this regard. As employees when completing the the policyholder’s claim requesting noted above, the court rejected the application for its policy, but the that reformation of the policy at insurer’s argument that coverage for IBIS representative concluded that issue. In denying the motion, the a civil action was defeated by the those discharges did not need to be court held that the plaintiff could insured’s failure to provide notice of listed on the application because the proceed with alternative theories its receipt of a preceding EEOC EPL policy would not include SSB. of recovery, at least at that early charge because the EPL policy did Subsequently, CFC decided to stage in the proceedings. not contain language treating the instead add SSB to the London In Asbury, the plaintiff car deal- civil action and EEOC charge as a Market policy issued by U.S. Risk. ership owner negotiated and pur- single claim deemed to occur during IBIS provided U.S. Risk with infor- chased primary and excess the prior policy period. The insurer’s mation regarding the number of umbrella policies from Chrysler argument that it was entitled to deny SSB’s employees and confirmed that Insurance in February 1999 for the coverage because the insured failed it abided by CFC’s employment pro- period from February 1999 through to disclose the EEOC charge in its cedures but did not specifically refer- February 2000. The plaintiff did application for the relevant renewal ence the discharges and that not receive the actual policies until policy also failed because the information was not requested in July 2000. The plaintiff alleged renewal application “did not ask any any further application. In denying that the insurer’s representative

Volume 35 • Number 1 • Fall 2005 • American Bar Association • The Brief “The First Wave of Decisions Interpreting Employment Practices Liability Policies” by Barbara A. O’Donnell, published in The Brief, Volume 10 35, No. 1, Fall 2005 © 2005 by the American Bar Association. Reproduced by permission. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association. advised him that the umbrella pol- claims against the insurer, the poli- judgment for the insurer on the icy would include all of the types cyholder may seek to recover con- plaintiff’s bad faith claim because of coverage included in the pri- sequential damages going beyond it properly denied coverage for the mary policy, including EPL cover- the available policy proceeds, per- FLSA overtime claims and there ages. In 1999 and 2000, a number haps for a settlement or judgment was no evidence that it failed to of current and former employees that would not otherwise be cov- properly investigate the potential filed EPL claims with the EEOC ered under the policy. In jurisdic- availability of coverage. In Big 5 and the Oregon Fair Employment tions in which a prevailing Corp. v. Gulf Underwriters Practices Bureau. Chrysler policyholder does not automati- Insurance Co.,76 the court held, defended the claims under the pri- cally recover declaratory judgment after concluding that coverage was mary EPL policy. In August 2000, attorney fees, a plaintiff may seek not available for the wage and Chrysler authorized the payment of to recover attorney fees incurred related claims asserted against Big $1,500,000 for settlement but because of the allegedly bad faith 5, that Gulf has “convincingly advised the plaintiff that the pri- denial of coverage. argued [that] it engaged in no bad mary policy limits were almost In Peoples Mortgage Corp. v. faith actions. The court is inclined exhausted. The plaintiff claimed Kansas Bankers Surety Co.,73 dis- to agree with Defendant Gulf; that this was when it first learned cussed above, the Tenth Circuit there can be no bad faith where that the umbrella policy did not held that the trial court did not there is no coverage.”77 In Lodgenet include EPL coverages. abuse its discretion in awarding the Entertainment Corp. v. American In allowing the claims to proceed, prevailing policyholder attorney International Speciality Lines the court held that the plaintiff’s fees upon concluding that the Insurance Co.,78 the court granted fraud and negligent misrepresenta- insurer engaged in bad faith when the insurer summary judgment on tion claims were adequately sup- it “unreasonably refused to investi- the policyholder’s bad faith claim ported by allegations that the insurer gate the [availability of coverage because, even though its coverage misled it regarding the scope of cov- for the] Gomez claim and unrea- denial was mistaken, the plaintiff erages in the umbrella policy to sonably refused to participate in could not demonstrate that the obtain the “$1.8 million premium (a the mediation at which the parties insurer lacked a reasonable basis tempting motivation indeed), cover- discussed the basis for the claim.”74 for denying coverage or acted in ing liabilities of an operation Apart from this decision, research reckless disregard of whether there extended over multiple locations in has not revealed any other was a reasonable basis for coverage. at least eight states.”71 The plaintiff’s reported decisions in which an fraud allegations were also supported EPL insurer has been held liable Conclusion by the “improbability that a sophisti- for extracontractual bad faith dam- The first wave of judicial decisions cated business organization would ages beyond the award of attorney construing EPL policies included negotiate and accept an umbrella fees incurred in seeking coverage. several disputes over the intended insurance policy that failed to cover Even in those jurisdictions that scope of the primary insuring the same areas of liability as the pri- recognize bad faith claims against clause that went before federal cir- mary insurance policy” as well as the insurers, these claims almost invari- cuit courts of appeal. In most of allegations regarding the “lengthy ably fail if the insurer establishes these decisions, the courts were delay in the defendant’s delivery of either that no coverage exists or confronted with policy language the relevant insurance policies.”72 that it relied on fairly debatable or that was unclear and/or inconsis- plausible grounds in denying cover- tent in important respects, either Bad Faith Claims age. In each of the following deci- because the parties attempted to Policyholders seeking coverage sions, previously addressed in this tailor policy provisions too nar- under EPL policies often include article, bad faith claims against rowly to address specific types of common-law or statutory bad faith insurers were dismissed. claims or because of unsuccessful or extracontractual claims with In Noxubee County School efforts to reconcile the typical their claims seeking coverage. In District v. United National Insurance exclusion for intended acts found jurisdictions that permit bad faith Co.,75 the court affirmed summary in other types of general liability

Volume 35 • Number 1 • Fall 2005 • American Bar Association • The Brief “The First Wave of Decisions Interpreting Employment Practices Liability Policies” by Barbara A. O’Donnell, published in The Brief, Volume 35, No. 1, Fall 2005 © 2005 by the American Bar Association. Reproduced by permission. All rights reserved. This information or any portion 11 thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association. policies against the goal of provid- no doubt continue to see decisions courts sometimes have to decide ing coverage for intent-based addressing whether the policy- whether an insurer is entitled to employment claims. It is perhaps holder’s noncompliance with the deny or limit coverage because a not surprising that initial disputes policy’s reporting requirements jus- newly filed complaint concerns or over EPL policies stemmed at least tified an insurer’s denial of cover- arises out of matters addressed in in part from limitations and incon- age based on late notice. While judicial or administrative proceed- sistencies in the policies’ basic most courts treat notice require- ings that commenced before the insuring agreement because there ments under claims-made policies policy inception, or that concern was considerable uncertainty when as a condition precedent to cover- conduct that predates the policy’s EPL first came onto the market age that does not require any retroactive date. If the policy- over how much insurance protec- showing of prejudice by the holder did not provide an earlier tion could be provided for intent- insurer, it is likely that this propo- insurer with notice of the prior based employment claims. sition will continue to be tested, related claim, it may find itself As insurers and policyholders particularly in jurisdictions that without coverage for the newly tested the application of EPL poli- have not already resolved this filed related claim. There is no rea- cies against the spectrum of question with regard to other types son why similar disputes should employment claims and gained of claims-made policies. not arise under EPL policies. comfort in the underwriting and As with any other type of policy, Given the range of issues pre- purchase of this type of coverage, evidence that the insured knew of sented by EPL policies, counsel for broad-based EPL coverage was but failed to disclose existing claims insurers, policyholders, agents, and offered by an increasing number of or knowledge of circumstances that brokers will be able to turn to a insurers. While EPL policies con- could reasonably be expected to give growing body of reported decisions tinue to differ in significant rise to claims can prompt an insurer that deal specifically with EPL respects, depending on the applica- to seek to rescind the policy (or policies, without having to rely as ble exclusions and available deny coverage for omissions or mis- heavily on the ability to extrapo- endorsements to coverage, the representations in the policy appli- late relevant holdings and princi- basic insuring clause in most poli- cation). When the underlying ples from decisions involving other cies is now broad enough to dispute is not significant, insurers types of liability policies. I encompass the typical range of may opt against pursuing rescission statutory and common-law remedies. In situations where the Notes employment practices claims, underlying exposure is significant, 1. EEOC Charge Statistics Fact including wrongful discharge, such as class actions or multiparty Sheet, at www.eeoc.gov/stats/charges.html. retaliation, and unlawful discrimi- claims, rescission claims will more 2. EEOC Litigation Statistics Fact nation based on race, gender, age, likely be pursued. Consequently, we Sheet, at www.eeoc.gov/stats/litigation. disability, religion, and other pro- can expect to see additional deci- html. tected categories. Consequently, it sions addressing rescission claims 3. 62 F. App’x 232 (10th Cir. stands to reason that forthcoming under EPL policies in coming years. 2003). 4. Id. at 234. Most EPL policies are decisions concerning EPL policies An issue that has not been written on a claims-made basis, in will focus less on the basic insuring squarely addressed in the first wave which coverage is afforded for qualified clause than specific policy exclu- of decisions addressing EPL poli- claims that are first made, and often sions and endorsements that vary cies is the treatment of multiple first reported, during the policy period. more widely depending on the claims that arise out of the same, This contrasts with occurrence-based policies that respond to injury, damage, range of protection purchased by or related set of, facts. Many poli- and/or offenses committed during the the policyholder. cies contain exclusions for prior policy period. Because EPL policies are typi- and pending litigation, or for 5. Id. at 239. cally written on a claims-made claims that arise out of conduct 6. Id. at 237. basis, in which coverage is afforded that predates a specified retroac- 7. Id. 8. Id. at 238. for claims received and reported tive date in the policy. When 9. 59 F. App’x 211 (9th Cir. 2003). during the policy period, we will addressing other types of policies, 10. Id.

Volume 35 • Number 1 • Fall 2005 • American Bar Association • The Brief “The First Wave of Decisions Interpreting Employment Practices Liability Policies” by Barbara A. O’Donnell, published in The Brief, Volume 12 35, No. 1, Fall 2005 © 2005 by the American Bar Association. Reproduced by permission. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association. 11. Id. 43. 108 F. Supp. 2d 1092 (Haw. 2000). 57. 2004 WL 2677204 (Cal. App. 4 12. Id. at 213. 44. 45 F. Supp. 2d 541 (E.D. La.), Dist. 2004). 13. Id. aff’d without opinion, 200 F.3d 816 (5th 58. A short while after submitting 14. Id. at 214. Cir. 1999). the policy application, BKM received a 15. 418 F.3d 511 (5th Cir. 2005). 45. 59 F. App’x 211 (9th Cir. 2003). claim from a third person. The court 16. Id. at 521. 46. 108 F. Supp. 2d 1092 (Haw. 2000). concluded that it did not need to 17. Id. at 525. 47. 62 F. App’x 232 (10th Cir. 2003). address whether BKM’s failure to dis- 18. 166 F. Supp. 2d 516 (N.D. Tex. 48. 2003 WL 22127029, *4 (C.D. close the claim received between sub- 2001). Cal. 2003). This summary judgment mission of the application and policy 19. Id. at 518. decision was issued as a tentative ruling, inception provided independent 20. Id. at 522. which the trial court adopted in its grounds for rescission because summary 21. Id. at 523. entirety in Big 5 Corp. v. Gulf judgment was properly granted to the 22. Id. at 524. Underwriters Ins. Co., 20003 WL insurer based on the insured’s failure to 23. 37 F. App’x 87 (5th Cir. 2002). 22127883 (C.D. Cal. 2003). On appeal, disclose the two claims received prior 24. 883 So. 2d 1159 (Miss. Sup. Ct. the Ninth Circuit affirmed summary to submission of the policy application. 2004). judgment for the insurer but did so on 59. 2004 WL 2677204 at *5. 25. Id. at 1164. the ground that the policy clearly and 60. Id. at *7. 26. Id. at 1166. unambiguously excluded coverage for 61. 2001 WL 1242891 (N.D. Ill. 27. Id. the unpaid wages sought in the underly- 2001). 28. 2003 WL 22119866 (Pa. Com. ing action without addressing the pol- 62. Id. at *6. Pl. 2003). icy’s exclusion for “fines or penalties 63. Id. at *5 (citing to ILL. INS. CODE 29. Id. at *3. imposed by law” or the trial court’s § 215, ILL. COMP. STAT. 5/154 (2001)). 30. 97 F. App’x 410, 411 (4th Cir. determination, discussed below, that the 64. Id at *6. 2004). underlying action sought restitutionary 65. Id. (citations omitted). 31. Id. at 412. relief and disgorgement of withheld 66. 299 F. Supp. 2d 987 (S.D. 2003). 32. Id. at 414. wages that the policy did not cover in 67. Id. at 995. 33. Id. at 413 n.1 (citing Am. Cas. any event. Big 5 Corp. v. Gulf 68. 144 F. Supp. 2d 1057 (N.D. Iowa Co. of Reading, Pa. v. Continisio, 17 Underwriters Ins. Co., 136 Fed. Appx. 2001). F.3d 62, 69 (3d Cir. 1994)). 996 (9th Cir. 2005). 69. Id. at 1073. 34. 2001 WL 1242891 (N.D. Ill. 49. 2003 WL 22127029, *4 (C.D. 70. 2002 WL 15925 (E.D. Pa. 2002). 2001). Cal. 2003). 71. Id. at *3. 35. Id. at *3. 50. Id. 72. Id. 36. Id. (quoting City of Harrisburg v. 51. 833 P.2d 545 (Cal. 1992). 73. 62 F. App’x 232 (10th Cir. 2003). Int’l Surplus Lines Ins. Co., 597 F. 52. 999 P.2d 706 (Cal. 2000). 74. Id. at *239. Supp. 954 (M.D. Pa. 1984)). 53. 2003 WL 22127029 at *5 (citing 75. 2004 Miss. LEXIS 1202 (Miss. 37. Id. at *4 (citations omitted). Helfand v. Nat’l Union Fire Ins. Co., Sup. Ct. 2004). 38. Id. 10 Cal. App. 4th 869 (1992)). 76. 2003 WL 22127029 (C.D. Cal. 39. Id. at *6. 54. 883 So. 2d 1159, 1164 (Miss. 2003), aff’d on other grounds, 136 Fed. 40. 299 F. Supp. 2d 987 (S.D. 2003). Sup. Ct. 2004). Appx. 996 (9th Cir. 2005). 41. Id. at 994. 55. Id. 77. Id. at *6. 42. Id. at 995. 56. 619 N.W.2d 510 (N.D. 2000). 78. 299 F. Supp. 2d 987 (S.D. 2003).