Retroactive Date Bars Coverage for Underlying Discrimination Action

A federal district court applying Alabama law has held that an insurer owed no defense or indemnification obligations because the employment practices at issue in an underlying discrimination action against the insured occurred prior to the policy’s retroactive date.  Elite Refreshment Servs. LLC v. Liberty Mut. Grp., Inc., 2020 WL 470289 (N.D. Ala. Jan. 29, 2020).

The insured was named as a defendant in an employment discrimination action, in which the claimant alleged that the insured discriminated against her based on her age and her sexual affiliation.  The claimant alleged that the insured fired her on October 25, 2016.  The lawsuit contained three causes of action and alleged that the claimant was suffering and would continue to suffer irreparable injury from the insured’s unlawful policies and practices.  The lawsuit sought relief in the form of a declaratory judgment that the insured’s policies, practices, and procedures violated the claimant’s rights, compensatory damages, and attorneys’ fees.

The insured sought coverage under its EPL policy, which was in effect for the claims-made period from February 6, 2017 to February 6, 2019.  The policy defined “employment practices” to include wrongful termination of employment, including retaliatory discharge and discrimination based on age, sexual orientation, or sexual preference.  The policy further stated that it applied only if such employment practices occurred after the retroactive date of January 31, 2017.  The insurer denied coverage for the underlying lawsuit because the alleged employment practices occurred on October 25, 2016 and thus predated the policy’s retroactive date.

The court held that coverage was precluded for the underlying discrimination action because, under the plain language of the policy, the final act of discrimination occurred more than three months before the January 31, 2017 retroactive date for the start of coverage.  In so holding, the court rejected the insured’s argument that coverage was triggered by the allegations that the insured’s policies, practices, and procedures continued to violate the claimant’s rights.  The court explained that such a description of continuing injury and continuing violations of law based on habits and practices are “legal phraseology” offered to support a request for injunctive relief.  The court concluded that the actual factual allegations in the complaint demonstrated that the last act of discrimination predated the retroactive date, such that the claimant’s legal phraseology concerning continuing practices and injuries did not trigger coverage.