In recent years, some employers have turned to EPLI (or employment practices liability insurance) to help control their costs. Some find it useful, others do not. But one important part of having the insurance is making sure it applies when you actually have a claim.

A recent federal court case highlights the importance of notifying the insurer of the claims at the Morgue File - public domain credittime they are filed with an administrative agency such as the EEOC or CHRO — not when those charges become a lawsuit.  As a colleague of mine once said, "Just pick up the phone and make the call." 

In American Ctr. for Int’l Labor Solidarity v. Federal Ins. Co., (D.D.C., Oct. 15, 2007), a federal district court held that, where the employer failed to notify the insurance company of the employment discrimination claim when it was filed at the EEOC, the employer cannot recover the costs of settlement an defense from the insurer. 

In doing so, the court concluded that a charge before the U.S. Equal Employment Opportunity Commission constituted a "formal" administrative proceeding requiring notice under the insurance policy. The court reviewed the policy’s definition of a "claim" which was included a "formal administrative or regulatory proceeding commenced by the filing of a notice of charges, formal investigative order, or similar document."

The Background

In American Ctr., the employer (a non-profit) twice received Notices of Charges from the EEOC in August 2002 and November 2002.  While the first charge indicated that no action was required by the employer, the second notice contained a  "perfected" Charge of Discrimination outlining the allegations in greater detail. The EEOC requested that the employer either participate in mediation or submit a position statement. The employer rejected mediation and submitted a position statement instead.  The EEOC ultimately dismissed the charge.

In December 2003, a race discrimination lawsuit against the employer was filed by the employee.
In January 2004, the employer notified the insurer of the lawsuit for the first time. In March 2004, the insurance company declined to cover the claim because of the untimely notice. 

The employer argued that the EEOC proceedings were not "formal" administrative proceedings.  The District Court rejected that argument and reviewed the scope of EEOC administrative proceedings, which includes charges, position statements, evidence, mediation, investigation fact-finding, subpoena powers, settlements and determinations on the merits.  Moreover, statements made by parties at the EEOC can be deemed to be admissions in later court proceedings. 

Ultimately, the court rule that the most "natural reading" of the liability policy was that an EEOC proceeding constituted a "formal administrative proceeding."

What should employers take away from this decision?

  • While each EPLI policy may differ, overall, insurance companies must be notified immediately whenever a charge or notice is received from an administrative agency, such as the EEOC and CHRO.  This should be done even if the employer is unsure the notice constitutes an actual "claim" under their liability policy.   While this case arises out of the District of Columbia, the facts presented in that case are likely to arise in many other jurisdictions, including Connecticut.
  • Employers should also have internal procedures as to how to handle the receipt of such administrative complaints and designate a person who will be responsible for notifying the insurance company and determining how the claim should be processed internally.
  • Lastly, management personnel should be notified that if they receive any notices from any governmental agencies, they should notify the appropriate company-designated personnel for handling the charges.

EEOC and CHRO charges typically have very short time frames for responding (30 days in many cases).  Ignoring them or shielding them from insurance companies will not make them go away and such actions will only compound issues later on.