Employment Discrimination Claim Was Excluded By An Intentional Acts Exclusion, But That Exclusion Did Not Render The Policy’s Coverage Illusory
Berns v. Sentry Select Ins. Co., 2014 U.S. Dist. LEXIS 88330 (C.D. Cal. June 5, 2014)
In Berns, the Central District of California held that the insurer had no duty to defend or indemnify its insured in connection with an underlying action because the intentional acts exclusion in the policy barred coverage as a matter of law.
In this case, the president of a corporation was insured under a CGL policy, and his company was named as an additional insured. The policy contained an Employment Practices Liabilities Endorsement, which provided coverage for “‘bodily injury,’ ‘mental anguish,’ or ‘mental injury’ [that is] caused by an ‘act’ of ‘discrimination,’ ‘wrongful termination’ or ‘harassment’ that: (a) Results from [the insured’s] employment practices . . . .” A former employee of the corporation brought suit against the corporation and the president. With regard to the president, the employee asserted claims for breach of fiduciary duty, fraud, breach of contract and declaratory relief. Specifically, plaintiff alleged that the president “[u]nilaterally and abruptly oust[ed] [the former employee] from [the corporation]’s offices . . . and then terminat[ed] her . . . in order to deprive her of any salary, health insurance reimbursement and other benefits.” The plaintiff also alleged that the president “lit into [her] while they were in her office … in a loud, angry, and abusive tone that embarrassed and frightened her.” The president tendered his defense of the action to the CGL insurer, which denied coverage based on the policy’s intentional acts exclusion. The president then filed a lawsuit for declaratory relief, breach of contract and tortious breach of the implied covenant of good faith and fair dealing arising out of the refusal to defend and indemnify. The carrier filed a motion for summary judgment based on the intentional acts exclusion, and the district court granted the motion.
In reaching its holding, the court noted that the only allegations implicating EPL coverage were the allegations that the president terminated the plaintiff “in order to deprive her of any salary, health insurance reimbursement and other benefits,” and that he “lit into [the plaintiff] . . . in a loud, angry and abusive tone….” The court found that “these alleged actions [could] only be described as intentional.” The court also disagreed with the insured’s argument that the application of the exclusion would render EPL coverage illusory. The court reasoned that harassment may be done unintentionally, and the policy would still cover wrongful termination or harassment claims against the corporation based on acts committed by its employees “without [the corporation’s] direction or . . . knowledge.”
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