EPLI Coverage May Not Be All That It Is Cracked Up To Be.

The Fifth Circuit out with a case this week that should have all employers and employment defense counsel not walking but running to check the language in their EPLI policies. In Coleman v. School Board of Richland Parish, No. 04-30445 (5th Cir. July 25, 2005), Mid-Continent Casualty Insurance Company issued an EPLI policy to insure the Richland Parish School Board against various risks, including loss resulting from claims based on actual or alleged racial discrimination, racial harassment, and breach of contract. Following execution of this agreement, a lawsuit was filed against the School Board alleging federal claims for intentional racial discrimination, and state claims for breach of contract and abuse of rights.

Mid-Continent refused to defend the suit on grounds that the policy excluded from coverage acts committed "with knowledge of their wrongful nature or with intent to cause damage." the district argued that because discrimination and harassment are by their very nature intentional acts, the exclusion would eclipse all coverage and make the policy all but a nullity. The Fifth Circuit disagreed and held that b/c the policy could be read to cover only disparate impact claims (no showing of intent required), the policy is not completely useless and therefore it should stand.

You really do have to be impressed with the audacity of the insurance company in this case. The policy that the school board purchased from Mid-Continent stated that coverage was provided for any:

?wrongful act? as ?any actual or allegedact, error, omission, misstatement, misleading statement, neglector breach of duty? committed by an insured party in the dischargeof his duties, including:(1) actual or alleged discrimination, whether basedupon race, sex, age, national origin, religion,disability or sexual orientation;(2) actual or alleged sexual or racial harassment;(3) actual or alleged libel, slander or otherdefamation;(4) actual or alleged invasion of privacy; or(5) actual or alleged interference with or breach ofany employment contract, whether oral, written,express or implied.

To then argue that a later general exclusion against "intentional" conduct reduces this stated coverage to such a degree that it does not provide any protection in 98% of employment cases is bold to say the least. The fact that the insurance company prevailed with such a patently dishonest and ridiculous argument would be absolutely amazing if this case were in any other Circuit other than the Fifth.

Just as an aside I note that blogger's spell check engine just attempted to substitute "EVIL" for "EPLI".