Lawsuit Filed by Company Against Former Officer Does Not Trigger Employment Practices Liability Coverage
The United States District Court for the District of Oklahoma has held that a lawsuit filed by a company against its former president did not implicate its policy’s Employment Practices Liability coverage because the lawsuit was not filed by or on behalf of an employee, as required by the policy. Statton v. Allied World Specialty Ins. Co., 2018 WL 454563 (N.D. Okla. Jan. 17, 2018). Furthermore, because the former officer failed to tender the Claim within fifteen days of the date on which it was first made, as required by the coverage section’s “Right to Tender Defense” provision, the individual was not entitled to a defense.
A company, an insured subsidiary under the relevant policy, filed a lawsuit against its former president for breach of fiduciary duty and breach of employment agreement, among other causes of action. The former president sought a declaratory judgment that he was entitled to indemnity and defense coverage under the Employment Practices Liability Coverage section of the company’s insurance policy as an Insured Person. The coverage section provided that the insurer would “pay on behalf of an Insured the Loss arising from a Claim . . . against such Insured for any Wrongful Act,” but only if the “Wrongful Act” was “alleged by or on behalf of an Employee . . . with the Company.” The coverage section also included a “Right to Tender Defense” provision which provided that Insureds had the right to tender the defense of a Claim, exercised by the Named Insured on behalf of all Insureds, by providing written notice of the Claim, which “shall terminate if it is not exercised within fifteen (15) days of the date the Claim is first made against an Insured.”
The district court concluded that coverage was unavailable for the former officer. First, the court found that the former president was not entitled to indemnity coverage because the company’s lawsuit was “clearly brought on its own behalf, and are not claims alleged by or on behalf of any employee.” The company was the only party seeking damages against the former president, and no employee was identified as a claimant. Therefore, the lawsuit was not a “Claim” “alleged by or on behalf of an Employee.” Second, the insurer had no duty to defend because the former president’s tender of defense did not comply with the policy’s “Right to Tender Defense” provision. The court stated that, in the first instance, the Named Insured did not tender the former president’s defense of the company’s claims, as required by the policy, and even if the former president, as an Insured, had an independent right to tender his defense, he failed to do so within the required 15-day time frame. The court held that the policy’s notice of claim provision, providing 90 days after the end of the policy period to report a claim, was a “separate requirement governing coverage obligations.” The court stated that the terms of the policy provided no general duty to defend and that the insurer will assume a defense “only if properly and timely tendered in accordance with the specific terms of the tender of defense provision, which includes a very clear 15-day deadline.” Accordingly, because the former president failed to give notice to the insurer within the 15-day window, he was not entitled to a defense.
