Suit By EEOC Not Covered Under EPLI Policy

It probably seemed like such a simple proposition. EEOC sues employer for sexual and racial harassment, racial discrimination, retaliation and constructive discharge. Employer has an EPLI policy.

Big claims, big settlement -- $2,000,000 plus another $700,000 in legal fees.

No question but that all of the allegations are clearly covered under the policy.

But the definition of covered "claim"?  That was a different story. It read simple enough:

a civil, administrative or arbitration proceeding commenced by the service of a complaint or charge, which is brought by any past, present or prospective ‘employee(s).’

Since the underlying case settled, the law suit was between the employer and the EPLI carrier, who argued that the claim was not covered because it was not brought by a 'past, present or prospective employee.'

You know it is no longer a simple proposition, when the Court summarizes some of the arguments in this way:

In its Response to [the Insurance Company's] Motion,  [the Employer] elaborates that the use of a comma followed by the word “which” means that the qualifying phrase modifies only the subject that immediately precedes the comma – in this case, only to “complaint or charge.”  [The Employer] asserts that if [the Insurance Company] intended to require that the “proceeding” be brought by an employee, the entire phrase “commenced by the service of a complaint or charge” should have been offset with commas. 

Hard to believe, but it gets even worse when the Court goes on to note that what the Employer was really referring to was the grammar principle of the "last antecedent rule."

But the bottom line in the trial court -- no recovery as not covered by the policy. Cracker Barrel Old Country Store, Inc. v. Cincinatti Insurance Co., 3:07-cv-00303 (M.D. TN 8/11/11).  If you are the employer, that's a big ouch.

Two thoughts:

1. Given the dollar amount and the result, it is likely the 6th Circuit will get to weigh in on this decision;
2. In corporate risk departments right now, EPLI policies are being re-read and calls are being made to brokers making sure that suits brought by governmental entities on behalf of employees are covered.

Life is never as simple as it seems.