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Lawsuit insurance: Does your policy cover EEOC claims?

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in Discrimination and Harassment,Human Resources

Really, it’s not too bad, right? You’re facing a discrimination lawsuit. Morale and company image may suffer. But at least your organization carries employment practices liability insurance (EPLI) to cover the “hard costs” of defense and settlement.

Or do you?

As Cracker Barrel learned last month, your EPLI umbrella policy may actually let in some rain … $2.7 million worth, in this case.

Case in Point: Over a two-year period, 10 Cracker Barrel em­­ployees filed race and sex discrimination charges with the EEOC. That prompted the EEOC to investigate and file suit against the company under Title VII of the 1964 Civil Rights Act.

Cracker Barrel notified its EPLI insurance carrier, believing the case was covered under the policy. Eventually, Cracker Barrel settled for $2 million. The company also racked up $700,000 in legal defense fees. Total cost: $2.7 million.

When Cracker Barrel turned to its EPLI insurance carrier to collect, Cincinnati Insurance pointed to the fine print and denied coverage for the verdict or the legal fees.

Why? The policy defined a covered claim as one brought by a “previous, current or prospective employee.” The EEOC was not any such “employee.”

The court said the fact that Cracker Barrel employees brought the original EEOC charges that helped trigger the EEOC lawsuit was “irrelevant.” (Cracker Barrel Old Country Store Inc. v. Cincinnati Ins. Co., M.D. Tenn.)

3 lessons learned … without going to court

1. Consider EPLI. It could save you a boatload of money in employment-related claims. While it’s a good safety net, nothing has a greater return on investment than providing anti-­discrimination training to prevent claims in the first place.

2. Read the fine print. As this court pointed out, the policy defined the terms of coverage. It’s your job to figure out what might not be covered in the EPLI policy and then negotiate for it.

3. Confirm EPLI covers the EEOC. Make sure your EPLI coverage includes claims made by the EEOC and all other such federal, state and local agencies. Cracker Barrel argued that the insurance company’s refusal to cover EEOC claims “flies in the face of common sense,” saying such lawsuits were the “very purpose of the coverage.” But the court said it was forced to stick to the plain language of the insurance contract, which clearly covered only claims by “employees.”


Mindy Chapman is an attorney and president of Mindy Chapman & Associates LLC. She is a master trainer and co-author of the book, Case Dismissed! Taking Your Harassment Prevention Training to Trial. Sign up to receive her blog postings at BusinessManagementDaily.com/Mindy.

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