Applying Illinois law, a federal district court has held that an insurer had no duty to defend or indemnify an insured for a lawsuit that derived in part from facts or circumstances that were the subject of an EEOC charge filed during a prior policy period.  U.S. Specialty Ins. Co. v. Village of Melrose Park, 2020 WL 1923076 (N.D. Ill. April 21, 2020).

An insurer issued EPL coverage to the insured for two consecutive policy periods.  A claimant filed an EEOC discrimination charge against the insured during the first policy period.  The EEOC dismissed the claim and provided the claimant with a right-to-sue letter. During the second policy period, the claimant brought a lawsuit against the insured based on the same allegations raised in the prior EEOC charge. The policyholder then provided notice of the lawsuit to the insurer during the second policy period.

The policy excluded coverage for claims “alleging, based upon, arising out of, attributable to, directly or indirectly resulting from, in consequence of, or in any way involving” a prior employment practices wrongful act if such claim “deriv[es] in whole or in part, from any fact, series of facts or circumstances, or matters asserted or alleged . . . known to any insured [] or [w]ere the subject of any prior or pending . . . regulatory proceeding” before the inception of the policy period. The insurer brought suit seeking a declaratory judgment that the insurer owed no duty to defend or indemnify under the policy based on this exclusion because the EEOC charge had been filed before the inception of the second policy period. Both parties filed motions for judgment on the pleadings.

The court granted the insurer’s motion for judgment on the pleadings, holding that the underlying lawsuit derived in part from the “facts or circumstances” alleged in the EEOC charges.  The court explained that, although some allegations in the complaint were not also asserted in the EEOC charges, “many of the retaliatory acts of which [claimant] complains in the underlying lawsuit do appear in the EEOC charges.” The court rejected the policyholder’s argument that the exclusion was inapplicable or unenforceable because it was overly broad and would render coverage illusory. Rather, the court held that coverage was not illusory because it “does not exclude coverage when the facts giving rise to the claim occur in the same policy year as the claim,” and the insureds could have given notice of the circumstances the same year they learned of the EEOC charge but chose not to. The court likewise rejected the insured’s argument that the exclusion did not apply to the EEOC charge because it did not constitute a “claim,” holding that the policy’s use of additional undefined terms such as “suit,” “litigation,” and “proceeding” encompassed the EEOC charges.