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The California Court of Appeal recently confirmed what the industry already knew: an insurer must defend an insured employer under an Employment Practices Liability Insurance Policy even where a complaint fails to explicitly state a potentially covered “cause of action.” The decision in PHP Insurance Service, Inc. et al. v. Greenwich Insurance Company (“PHP”), however, went further than most coverage decisions and confirmed the trial court’s decision that the insurer is obligated to provide a defense even where the complaint alleges “remote facts buried within causes of action that may potentially give rise to coverage.”
In PHP, the court considered whether insurance coverage existed – and thus triggering a duty to defend – in connection with a class action lawsuit filed by employees claiming California Labor Code violations. Plaintiffs first amended complaint asserted allegations of discrimination and harassment based on race; namely that Vietnamese speaking employees were hired in order to take advantage of their lack of knowledge regarding labor and employment rights and were forced to change their Vietnamese names to American names. The Court of Appeal affirmed the lower court’s ruling that the Plaintiffs’ allegations fell within the insurance policy’s definitions of discrimination and harassment and, thus, Greenwich was required to defend the entire lawsuit even if some of the claims may not have been entitled to coverage under the insurance policy.
While the requirement that an insurer must defend an entire action when even one claim or allegation is potentially covered is not new to insurance law, the reference to “remote allegations buried in a complaint” reinforces the breadth of that principle in the employment context. Employers and insurers alike should take note of this decision. For employers, be familiar with the terms of your insurance policies – whether they are for employment claims, general liability or other types of coverage – and ensure that you take the necessary steps to tender claims to your insurer. For insurers, as with all contracts, the terms of the policy are critical to how a court will ultimately determine whether coverage exists and attention must be paid to the terms of the policy from the start to ensure that the terms are clear and enforceable.
JoLynn M. Pollard is a Shareholder at Hunt Ortmann who, for 30 years, specializes in the fields of business and insurance counseling and litigation, as well as employment. Ms. Pollard leads the Firm’s growing Employment Law Group, and also spearheads Hunt Ortmann’s burgeoning Insurance Group. For more information, please visit our website here or contact us directly at firstname.lastname@example.org.