Hospitality Industry Employment Liability Risks: "Employment Practices Liability Insurance" Does Not Cover Lawsuit Brought By EEOC According To A Federal Court; Insurance "Claims" Limited To Suits Brought By "Employees"

“…A federal court in Tennessee recently ruled that an employer’s employment practices liability insurance (EPLI) did not cover a $2.7 million settlement of a lawsuit brought by the EEOC… because the policy limited “claims” to proceedings brought by employees, and the EEOC was not Cracker Barrel’s employee…”

 The specific language in the policy defined a “claim” as “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)’ of the ‘insured entity’ against any ‘insured.’”

After 10 Cracker Barrel Old Country Store employees filed charges of race and/or sex discrimination with the EEOC, the EEOC sued Cracker Barrel under Title VII. Cracker Barrel eventually settled the underlying EEOC lawsuit, entering into a consent decree obligating it to place $2 million into a settlement fund. In addition, Cracker Barrel incurred more than $700,000 in defense costs.    

Although Cracker Barrel gave proper written notice of the EEOC lawsuit to its carrier, the Court ruled that Cracker Barrel was not entitled to recover any of the $2.7 million under its EPLI policy. The Court held that the language in the EPLI policy did not extend to the EEOC lawsuit because the policy limited “claims” to proceedings brought by employees, and the EEOC was not Cracker Barrel’s employee.

For more:  http://www.lexology.com/library/detail.aspx?g=21384c3f-95d2-424d-a68c-ecd547ebe694