Circuit Court Vacates Decision Holding Insurance Company Must Indemnify Employer Liable in Sexual Harassment Claim

The First Circuit of the U.S. Court of Appeals vacated a decision by the District Court granting summary judgment for an insured employer, requiring its insurance company to defend and indemnify it against sexual harassment claims.[1] The First Circuit held that there was a factual dispute as to whether the underlying sexual harassment charges began before the insured employer’s insurance policy took effect.

Beginning in 1997 to 2006, Mrs. Burgess was a human resource manager at Jasmine, a clothing retailer of whom Manganella was the president and sole shareholder.  In 1998 another former employee filed claims against Jasmine based on Manganella’s offensive conduct. In response, Jasmine purchased from the insurance company, Evanston, an employment liability insurance policy.   The Policy covered damages, including monetary settlements, “which [Jasmine] shall become legally obligated to pay as a result of [timely made claims], by reason of any Wrongful Employment Practice.[2]” The Policy stated that Wrongful Employment Practice includes, “conduct of an Insured with respect to … [an] employee that allegedly culminated in … violation of any state, federal or local civil rights or anti-discrimination law and/or fair employment practices law.[3]”  According to the contract, for a claim to be covered, a Wrongful Employment Practice must have happened in its entirety during the policy period or after the retroactive date, which was April 28, 1999.

On March 19, 2007, Burgess filed a charge of discrimination against Manganella and Jasmine with the Massachusetts Commission Against Discrimination. Burgess’s MCAD charge alleged that, “throughout her employment with Jasmine, Manganella subjected Ms. Burgess to nearly constant physical and verbal sexual harassment,” including “inappropriate comments about Ms. Burgess’ body, inappropriate touching,” and, eventually, coerced sexual activity on five separate occasions.[4]

Ten days after Burgess filed her charges Manganella notified Evanston of her claims and requested coverage. Less than two weeks later, Evanston sent a letter to Jasmine, denying coverage for Burgess’s claims on the ground that the harassment alleged by Burgess in “did not happen in its entirety subsequent to the retroactive date,” as required for coverage.[5]

While the District Court granted the employer’s action for declaratory judgment that the insurance company had a duty under the insurance policy to defend and indemnify it against charges of sexual harassment, the Court of Appeals found that statements made by the former employee could support the inference that the harassing conduct giving rise to her claim did include inappropriate comments before the Policy’s April 1999 retroactive date.  After analyzing the insurance policy and the statements made by Manganella’s, the Court held that a reasonable factfinder could conclude that Manganella’s offensive sexual comments, while perhaps “not … serious enough for complaint” when made, were ultimately part of the broader pattern of harassing, unlawful conduct that gave rise to Burgess’s claims.[6]  The Court thus vacated and remanded the case to determine if any of Manganella’s harassing conduct toward Burgess predated the insurance policy.

 

Employers and businesses need Employment Liability Insurance to insulate them from the inherent risks and unpredictable events that arise from owning and running a business, but coverage requirements and policy details are often complex.  The lawyers at Maya Murphy, P.C., are experienced and knowledgeable employment law practitioners and assist clients in New York, Bridgeport, Darien, Fairfield, Greenwich, New Canaan, Norwalk, Stamford, Westport, and elsewhere in Fairfield County. Should you have any questions about Employment Liability Insurance, coverage and policy requirements, workplace sexual harassment or any other employment law matter, please do not hesitate to contact Attorney Joseph C. Maya, Esq. He may be reached at Maya Murphy, P.C., 266 Post Road East, Westport, Connecticut, by telephone at (203) 221-3100, or by email at JMaya@mayalaw.com.



[1] Manganella v. Evanston Ins. Co., 702 F.3d 68, 72 (1st Cir. 2012)

[2] Id.

[3] Id.

[4] Id.

[5] Id.

[6] Id. at 73

 

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