Court Finds EEOC Charge and Subsequent Lawsuit to Be Two Separate Claims Under Claims-Made Policy

The United States District Court for the Northern District of Illinois, applying federal and Illinois law, has found that an employment discrimination lawsuit was “first made” within a professional liability policy’s policy period despite the fact that the lawsuit’s required precursor, an Equal Employment Opportunity Commission (EEOC) charge, was filed before the policy period.  John Marshall Law Sch. v. Nat’l Union Fire Ins. Co., 2016 WL 7429221 (N.D. Ill. Dec. 26, 2016).  The court also refused to dismiss an insured’s request for a declaratory judgment that would prevent the insurer from raising policy defenses, as well as the insured’s claim for vexatious refusal to pay under an Illinois statute.

The insured, a law school, was sued by one of its professors for alleged disability discrimination during the policy period of the insured’s claims-made liability insurance policy.  Before the policy period, the professor had filed a charge based on the same allegations with the EEOC, as required before he could sue in court.  The insurer denied coverage for the lawsuit on the basis that the insured’s claim was first made when the EEOC charge was filed, which was outside the policy period.  The insured disagreed, arguing that the lawsuit was first made within the policy period, independent of the preexisting EEOC charge.  The insurer filed a motion to dismiss.

The Northern District of Illinois denied the insurer’s motion to dismiss, finding the policy ambiguous as to when a claim is “first made” when two legal proceedings arise from the same facts.  Noting that the policy did not define when a claim is “first made,” the court articulated the issue as “whether the EEOC charge and the lawsuit are two separate claims as the policy defines that term, or just one.”  The court stated that if the two proceedings constituted one claim, then the insurer would be entitled to dismissal because the claim was first made when the EEOC charge was filed against the insurer.

The court found that, construing the policy in the insured’s favor, the EEOC charge and lawsuit were two separate claims.  Relying on Lodgenet Entertainment Corp. v. American International Specialty Lines Insurance Co., 299 F. Supp. 2d 987 (D.S.D. 2003), the court found that two policy provisions implied that multiple claims could arise from the same facts.  First, the policy’s notice/claim reporting provision stated, “if written notice of a Claim has been given… then any Claim which is subsequently made… arising out of [the same facts] shall be considered made at the time such notice was given.”  Second, the policy contained an exclusion stating that “the insurer is not liable to pay for a loss ‘in connection with a Claim made against an insured… alleging, arising out of, based upon or attributable to the facts alleged, or to the same or Related Wrongful Act alleged or contained in any Claim’ reported under an earlier policy of which the current policy is a renewal.”  Based on these provisions, as well as the fact that the EEOC charge and lawsuit each fell under the policy’s definition of “claim,” the court found that the two proceedings could reasonably constitute separate claims, and therefore, the lawsuit was a claim first made within the policy period.

The court also found that the insurer was not entitled to dismissal of the insured’s request for declaratory judgment, because the policy contained language sufficient to give rise to a duty to defend.  Similarly, the court did not dismiss the insured’s claim for vexatious refusal to pay, as the insured sufficiently alleged that the insurer had no bona fide basis to deny coverage.

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