Failure to Report EEOC Charge Precludes Coverage for Interrelated Lawsuit

The United States District Court for the Eastern District of Arkansas, applying Arkansas law, has held that coverage is unavailable for a lawsuit arising out of Interrelated Wrongful Acts at issue in an EEOC charge where the insured failed to report the EEOC charge to its insurer within the claims-made policy’s reporting period.  Pine Bluff Sch. Dist. v. ACE Am. Ins. Co., 2019 WL 3074011 (E.D. Ark. July 12, 2019).  The court also held that the insurer was not barred from denying coverage based on waiver or estoppel after it first provided a defense under a reservation of rights.

The insured, a school district, maintained employment practices liability coverage for successive policy periods of April 2, 2015 to February 1, 2016 (the 2015 Policy) and February 1, 2016 to February 1, 2017 (the 2016 Policy).  Each of the policies provided coverage only for “Claim[s] first made against an Insured and reported to the Insurer during the Policy Period.”  The policies further provided that “[a]ll Claims arising out of . . . Interrelated Wrongful Acts . . . shall be deemed to be one Claim.  Such Claim shall be deemed to be first made on the date the earliest of such Claim is first made, regardless of whether such date is before or during the Policy Period” (the Single Claim Provision).

On December 1, 2015, a former teacher filed a charge of discrimination with the Equal Employment Opportunity Commission (EEOC), alleging that her employment had been terminated because she had rebuffed and subsequently reported sexual harassment by her principal.  She filed a lawsuit against the school district and the principal on September 22, 2016, citing the EEOC charge.  The insured noticed the lawsuit to its liability insurer under the 2016 Policy.  On October 25, 2016, the insurer issued a coverage letter, which requested copies of the EEOC charge and related materials and, pending its receipt and review of same, agreed to provide a defense under a reservation of rights.  After obtaining the requested materials, the insurer denied coverage on the basis that the lawsuit and EEOC charge involved Interrelated Wrongful Acts and, therefore, constituted a single Claim first made during the 2015 Policy Period but not reported within that policy’s 60-day reporting grace period.  The insured sought a declaratory judgment that coverage was available.  The insurer moved for summary judgment.

The court granted the insurer’s motion for summary judgment.  The court rejected the school district’s argument that the Single Claim Provision was ambiguous simply because it was included in the “Limits of Liability” section of the policy, which, according to the insured, “is directed only at the amount of liability…, not at the issue of whether or not coverage exists.”  The court found that the location of the provision did not render the application of the single claim language ambiguous, including because the policy stated that section headings “do not in any way limit, expand[,] or otherwise affect” the policy’s provisions.  The court concluded that it was “undisputed” that the EEOC charge and subsequent lawsuit were “related” based on the definition of “Interrelated Wrongful Acts” because the lawsuit and EEOC charge arose out of the same allegations of sexual harassment and retaliation.

Finally, the court rejected the insured’s argument that the insurer was barred from denying coverage under the doctrines of waiver or estoppel because it did not deny coverage until February 14, 2018, after initially providing a defense.  The court noted that the insurer reserved the right to deny coverage in its October 25, 2016 letter, and the insured delayed providing the insurer with all requested materials relating to the EEOC charge until January 9, 2018.  The court also observed that “Arkansas law does not permit waiver and estoppel to broaden the scope of coverage afforded by a policy.”