January 3, 2012 – Cleary Consultants, a Boston placement firm received an early Christmas present from the Massachusetts Appeals Court on December 16th. The placement firm won a decision against Norfolk and Dedham that established that Norfolk and Dedham had the duty to defend the placement company against a discrimination complaint pending before the Massachusetts Commission against Discrimination (MCAD). The Appeals Court decision reversed a Superior Court decision in favor of Norfolk and Dedham.
Ordinarily, for an insured to obtain defense coverage for a discrimination complaint pending before the MCAD would have had to a purchased an employment practices liability policy. In this case, the Norfolk and Dedham “Special Business Owners Policy” did not have an exclusion, as does some other commercial liability policies, for personal and advertising injury associated with discrimination against or harassment of an employee.
In this case, the Appeals Court found the duty to defend within the broad definition of the policy’s personal and advertising injury coverage.
Points for Agents from the Court’s Decision
The Appeals Court holding had three important points for agents to consider in advising their insureds as to potential defense or indemnity of MCAD claims even though this type of proceeding would not necessarily be considered “Suits” in some agents’ and companies’ parlance.
The court stated that MCAD proceedings were included within the definition of the policy because “The term “suit” is broadly defined as “a civil proceeding in which damages because [of, e.g.,] ‘personal and advertising injury’ to which this insurance applies are alleged.” In other words, the policy and similar policies do not limit their coverage to cases filed in court.
Also the appeals court gave no significance to the fact that the MCAD does not have jurisdiction to adjudicate either a common-law claim of slander or a common-law or statutory claim of invasion of privacy that would ordinarily constitute personal injury under the policy. The court found it was enough that the MCAD has jurisdiction to award damages for emotional distress.
The court remanded the case for further factual development on the issue of Norfolk and Dedham’s defense that the policy excluded actions “[c]aused by or at the direction of the insured with the knowledge that the act would violate the rights of another and would inflict ‘personal and advertising injury.’ The claimant had reported the sexual harassment to the company’s principal who had apparently done nothing. The court declined to impute the corporate principal’s actions to the insured corporation itself as a matter of law and remanded the case for factual findings as to whether the exclusion applied to the insured corporation.
Finally, the case also discussed the reservation of rights by Norfolk and Dedham in regard to the Massachusetts rule that if an insurer reserves its rights to disclaim liability then the insured has to select counsel and the carrier is required to pay the insured’s reasonable attorney’s fees for so long as the reservation of rights continues in effect.
Copy of Case Available upon Request
The title of the case is Norfolk & Dedham Mutual Fire Insurance Company v. Cleary Consultants, Inc., 81 Mass. App. Ct. 40 (2011). If any subscribers to the site would like a copy of the case simply e-mail your request to ogallagher@AgencyChecklists.com.