Letter Alleging Wrongful Termination and Seeking Reinstatement Constitutes a “Demand for Damages or Other Relief”

In a win for Wiley Rein’s client, the U.S. District Court for the District of Colorado has held that a liability insurer had no duty to defend an Equal Employment Opportunity Commission (EEOC) charge and related lawsuit on the basis that a letter predating the charge and lawsuit was a “claim” first made prior to the policy period. Scottsdale Indem. Co. v. Convercent, Inc., 2017 WL 5446093 (D. Colo. Nov. 14, 2017). The court held that the pre-policy letter, which alleged wrongful termination based on age discrimination, sought reinstatement and threatened litigation, constituted a “claim” because it was a “demand for damages or other relief.”

The insured, an ethics compliance software company, notified an employee and former officer of the company that his position would be terminated. In response, the employee sent a letter to the insured and its board of directors, alleging that his employment had been terminated in breach of representations made to him and in violation of federal law on the basis of age discrimination. The letter requested that the parties “reflect on what ha[d] taken place and why” and asked that the company “ensure that [the employee’s] salary and benefits were not interrupted.” The letter also asked that the parties “get together and determine if [the employee’s] continued employment” could be addressed in a matter “to avoid litigation.” Finally, the letter expressed that the employee would “pursue all appropriate remedies against everyone involved.” After receiving no response, the employee sent a second letter a few months later, which stated that the company “[could not] be looking forward to addressing publicly the allegations of contractual breach, misrepresentation, retaliation, and discrimination.”

The employee filed a charge of discrimination with the EEOC seven months later, and subsequently filed suit against the insured, raising the same allegations asserted in the letter. The insured timely tendered the EEOC charge and related lawsuit to its employment practices liability insurer. The insurer denied coverage on the basis that the pre-policy letter constituted a “claim” first made outside the current policy period, and because the EEOC charge and related lawsuit were related to the letter, the three claims constituted a “single claim” made during the prior policy period. Because the insured tendered the EEOC charge and lawsuit after the prior policy period, the insurer argued that the claim was not timely reported.

In resulting coverage litigation, the court held that the letter constituted a “claim” because it was a “demand for damages or other relief.” The court first rejected the insured’s argument that the letter was not a demand because it was not written by an attorney. Rather, the court found that the employee “was a sophisticated professional,” the letter stated specific violations of law, and the threat of litigation constituted “a thinly veiled ultimatum” that the insured could not legitimately ignore.

The court also rejected the argument that the employee had not sought specific relief. The court challenged the insured’s characterization of the letter as merely part of employment negotiations, holding instead that the employee demanded specific relief in the form of reconsideration of the decision to terminate his employment and a request to ensure his benefits and salary would not be interrupted.

Finally, the court refused to require that the employee seek redress from a court, holding that such a requirement would render the policy duplicative. The court stated, “a more reasonable interpretation recognizes that while ‘damages or other relief’ can include the type sought from a court, such as monetary damages or equitable relief, the party need not make these requests of a court.”

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