‘Notice’ provision not triggered by draft legal complaint

An employer did not forfeit coverage for an employment discrimination suit when it waited until a legal complaint hit the court to notify the carrier.

The insurance company, Philadelphia Indemnity, refused to defend the eventual suit. It said the employer had an obligation to report the employee’s accusations after the employer had been contacted by the employee’s lawyer and seen a draft legal complaint that demanded money damages. But the 4th U.S. Circuit Court of Appeals said the carrier had a duty to defend the employer.

Here’s how the story played out for employer SNL Financial LC, a business intelligence company based in Charlottesville.

In January 2008, company president Mike Chinn got a letter from Murray Schwartz, who represented a former employee, requesting a meeting to discuss the company’s “discriminatory conduct” against his client. During a telephone conversation with the company lawyer, Schwartz mentioned the former employee would accept $1.2 million for his age and disability discrimination claims.

Although the employee’s lawyer let a company lawyer come to his New York office to read a draft of a written complaint – seeking $16 million in compensatory and punitive damages – the company lawyer was not permitted take notes or make a copy of the complaint.

The employee filed a complaint for age and employment discrimination on Oct. 3, 2008, a copy of which SNL received on Oct. 20. It provided notice of the complaint to the carrier on Oct. 27, 2008.

Charlottesville U.S. District Court Judge Norman K. Moon ruled for SNL, saying in SNL Financial LC v. Philadelphia Indemnity Ins. Co. (VLW 009-3-546) that the company complied with the policy’s notice requirements when it waited until the employee filed suit to call the carrier.

A 4th Circuit panel upheld the coverage decision in a Nov. 23 unpublished opinion written by Judge Barbara M. Keenan.

The policy language explicitly defined a “claim” as “a written demand for monetary or non-monetary relief,” and Keenan said neither the pre-filing letters that alluded to discriminatory conduct and a “hope” for an “amicable resolution” nor the unsigned draft legal complaint constituted a claim.

Although the draft legal complaint named numbers in its ad damnum, the employee’s lawyer refused to articulate a demand when he offered the complaint for review, because he said he was waiting on a report from the employee’s doctor.

The employer also did not lose coverage because it did not flag the complaint as current “litigation” when it renewed its policy in 2008. The employee’s complaint only represented “potential” litigation, Keenan said. The carrier’s position on the policy requirement effectively translated the term “litigation” into “dispute,” for purposes of describing the status of the employee’s complaint.