Court Holds that Contract Exclusion in EPL Policy Does Not Preclude Duty to Defend When Some Allegations Extend Beyond Employment Contract

Applying Indiana state law, the Indiana Court of Appeals has held that a breach of contract exclusion did not preclude a duty to defend under an employment practices liability policy because some of the underlying allegations may have involved wrongful employment acts that extended beyond a breach of an employment contract. ClearPoint Fed. Bank & Trust v. Fed. Ins. Co., 2025 WL 100725 (Ind. Ct. App. Jan. 15, 2025).

In August 2019, the insured bank and the chair of its board of directors were sued by the former CEO of the insured who claimed that the bank had breached its employment contract with him. The insured sought coverage under three insurance policies issued by the insurer: (i) an employment practices liability policy; (ii) a commercial general liability policy, and (iii) an excess and umbrella policy. The insurer denied coverage, and the insured filed suit. The insurer and the insured then filed competing motions for summary judgment. The trial court held that the CGL and excess/umbrella policies did not apply but also held that the insurer had a duty to defend under the EPL policy. The parties cross-appealed.

As for the CGL and excess/umbrella policies, the appellate court held that an employment-related practices exclusion applied because all the allegations by the CEO were connected to his employment with the bank, including allegations relating to defamation. As a result, the insurer did not have a coverage obligation under the CGL and excess/umbrella policies.

As for the EPL policy, the appellate court held that the contract exclusion, which barred coverage for “amounts alleged to be owing under, or arising out of, or related to an express or implied contract of employment,” did not preclude a duty to defend because the action “alleged colorable claims that could have potentially extended beyond the realm of a breach-of-contract claim.” For example, allegations relating to the CEO’s employment status and compensation under a stock plan, in the court’s view, arguably were outside the scope of the employment contract. As a result, the appellate court affirmed the trial court’s ruling that the insurer had a duty to defend under the EPL policy.