MEALEY’S Emerging Insurance Disputes
Vol. 12, #13 July 3, 2007
Commentary
Employment Practices Liability Coverage For Retaliation Claims
By
James E. Scheuermann
and
John F. Carella
[Editor’s Note: James E. Scheuermann is a partner in
the Pittsburgh office of Kirkpatrick & Lockhart Preston
Gates Ellis LLP, where he represents policyholders in
insurance coverage matters. John F. Carella was an associate with Kirkpatrick & Lockhart Preston Gates Ellis
LLP and is now employed by a non-profit organization
in Washington, DC. This article reflects the authors’
views on coverage for employment-related retaliation
claims, but not necessarily their views on resolution of
those issues. Moreover, this article does not necessarily reflect the views of any client of K&L Gates or the
firm itself. Research assistance provided by Christopher
Michalski, a K&L Gates associate, is gratefully acknowledged. Copyright 2007 by the authors. Replies to this
commentary are welcome.]
I.
Introduction
Claims for employment-related retaliation and retaliation discrimination are often an underappreciated source of corporate liability. The essence of an
employment-related retaliation claim is the allegation that an employer has taken some adverse action
against an employee in response to that employee’s
attempt to vindicate a legal right relating to employment. A host of federal and state statutes — most
prominent among them, the Sarbanes-Oxley Act,
federal and state anti-discrimination statutes such
as Title VII of the Civil Rights Act of 1964, the
Fair Labor Standards Act, the National Labor Relations Act, the Occupational Safety and Health Act,
and the Employee Retirement Income Security Act
— include provisions that make retaliation for an
employee’s exercise of his or her rights under the
statute unlawful. Retaliation claims can present
challenges for defense counsel at least as great as the
discrimination, harassment, or other claims that
serve as their predicates. Because clear legal standards for assessing retaliation claims may be lacking,
because the claims may arise out of ongoing employment relationships of which an employer’s ongoing evaluations and adverse employment actions
may be an integral part, and because the claims tend
to be factually intense, they can be very difficult to
dispose of on summary judgment and can present
real risk to employer-policyholders even when they
may be meritless.
Retaliation claims are a favored weapon against employers. According to the latest Equal Employment
Opportunity Commission (“EEOC”) statistics,
the EEOC received 22,555 charges of retaliation
discrimination in fiscal year 2006, which is: almost
9 times the number of religious discrimination
claims received (2,541); nearly double the number
of sexual harassment charges filed (12,025); over
40% more than the volume of disability discrimination charges filed (15,575); over 36% more than
the number of age discrimination claims received
(16,548); and nearly equal the number of genderbased discrimination claims (23,247). See http://
www.eeoc.gov/stats/charges.html (visited 6/28/07).
In a word, retaliation claims represent real exposure
no less than the substantive claims that serve as
their predicates. Moreover, history is only partially
prologue. Last year, the U.S. Supreme Court interpreted the retaliation provisions of Title VII of the
Civil Rights Act of 1964, 42 U.S.C. § 2000e et seq.,
in a way that expands the types of activities that may
MEALEY’S Emerging Insurance Disputes
Vol. 12, #13 July 3, 2007
give rise to an actionable retaliation claim. This
decision will inevitably lead to a greater number of
retaliation claims and greater employer exposure for
such claims.
Against the backdrop of this inhospitable risk landscape, it is all the more important that corporate
policyholders understand and utilize their available
insurance coverage for retaliation claims. Specifically,
Employment Practices Liability (“EPL”) insurance
policies, which have been broadly marketed since the
early 1990s, often expressly provide defense and indemnity coverage for retaliation claims. See, e.g., San
Miguel v. Necso Redondo, S.E., 394 F. Supp.2d 416 (D.
PR 2005); see also Township of Bridgewater v. Diamond
State Ins. Co., 2005 WL 4123417 (N.J. Super. App.
Div. June 20, 2006) (public officials liability policy
providing EPL coverage).
II.
EPL Policies
There is no single, industry-wide standard EPL policy
form. Nonetheless, typically EPL policies cover a
host of workplace- and employment-related claims,
including wrongful discipline, wrongful termination,
failure to promote, wrongful demotion, harassment,
discrimination, deprivation of a career opportunity,
other violations of employment laws, and breach of
contract. Some EPL policies expressly identify retaliation as a covered act while others do not. Depending
on the context, any of these other types of covered
actions may constitute a form of retaliation, and thus
be within the policy’s coverage. See, e.g., Missouri Pub.
Entity Risk Mgt. Fund v. Investors Ins. Co. of Am., 338
F. Supp.2d 1046, 1052 (W.D. Mo. 2004).
Exclusions in EPL policies purport to carve out areas
of employment-related liability and remove them
from the coverage provided by the policy. Of particular interest here, EPL exclusions may attempt to bar
coverage for violations of:
•
the Fair Labor Standards Act (“FLSA”);
•
the National Labor Relations Act (“NLRA”);
•
federal and state securities laws, including the
Sarbanes-Oxley Act;
•
the Occupational Safety and Health Act
(“OSHA”); and
•
the Employee Retirement Income Security Act
(“ERISA”).
Each of these exclusions, however, also commonly
contains an exception to the exclusion that preserves
coverage for claims for “retaliation” or “retaliatory
treatment,” even in those policies that do not expressly
identify retaliation as a covered act. For example,
the standard form EPL policy promulgated by ISO
Properties, Inc., provides that the exclusion for the
violation of laws applicable to employers:
does not apply to any “claim” for retaliatory treatment by an insured against any
person making a “claim” pursuant to
such person’s rights under any statutes,
rules or regulations.
See 1 Miller’s Standard Insurance Policies Annotated at
p. 411.6 (4th ed. 2006) (ISO form EP00 01 01 02).
More specifically, one such exception to an NLRA
exclusion provides:
[T]his Exclusion shall not apply to any
Claim for retaliatory treatment of any
claimant(s) because of claimant’s actual
or alleged exercise of a right protected
under the NLRA or related statutes, or
any law, statute or regulation similar to
the foregoing.
See, e.g., XL Insurance (Bermuda) LTD, Form EPL005, as amended by AON Amendatory Endorsement EP319.02. Thus, while an alleged violation of
the NLRA may be excluded under an EPL policy, a
plaintiff’s follow-on claim of retaliation for attempting to exercise his or her rights under the NLRA
would not be excluded and would be within the
policy’s coverage. The exceptions to the FLSA, securities laws, OSHA, and ERISA exclusions typically
are similarly worded and the same analysis applies to
them. See, e.g., Federal Insurance Company, EPLI
Form 14-02-0953 (Rev. 8/96) (“this exclusion shall
not apply to any Claim for retaliatory treatment of
any claimant because of any claimant’s actual or alleged protected lawful activity under” the FLSA or
OSHA). In order to understand what coverage is
preserved though the retaliation exceptions to these
exclusions, a few words on the current status of the
law on retaliation is helpful.
MEALEY’S Emerging Insurance Disputes
III.
The Burlington Northern Decision And
The Sarbanes-Oxley Act
A.
The Burlington Northern Decision
The Supreme Court recently expanded the scope
of employer conduct that can give rise to a viable
retaliation claim under Title VII of the Civil Rights
Act of 1964 in Burlington Northern & Santa Fe Rwy.
Co. v. White. __ U.S. __, 126 S.Ct. 2405 (2006).
Title VII’s anti-retaliation provision prohibits an employer from “discriminat[ing] against” an employee
or job applicant because that individual “opposed
any practices” made unlawful by Title VII or “made
a charge, testified, assisted, or participated in” a Title
VII proceeding, hearing, or investigation. 42 U.S.C.
§ 2000e-3(a). Prior to the Court’s decision in Burlington Northern, many federal circuit courts held that
a retaliation claim could be maintained under Title
VII only if the alleged retaliatory action affected the
terms and conditions of employment or constituted
an “ultimate employment decision” such as termination, hiring, or promotion. See, e.g., Mattern v. Eastman Kodak Co., 104 F.3d 702, 707 (5th Cir. 1997);
Manning v. Metropolitan Life Ins. Co., 127 F.3d 686,
692 (8th Cir. 1997). Burlington Northern, however,
significantly expands the rights of employees under
Title VII’s anti-retaliation provision. The expansion
stems from the Court’s holding that the anti-retaliation provision applies not just to employment-related
actions that adversely affect the terms and conditions
of employment (such as firing or demotion), but
also to actions not directly impacting the employee’s
terms or conditions of employment. Normal, facially
non-retaliatory conduct may constitute unlawful
retaliation because of the context, including factors
and conduct outside the workplace. An example of
this extension beyond employment cited by the Court
was an employer’s filing of false criminal charges
against an employee who had filed a discrimination
complaint. Burlington Northern, 126 S. Ct. at 2412.
A supervisor’s assault of an employee at a local tavern
frequented by an employer’s work force may be another example.
In articulating this standard, the Court held that a
plaintiff alleging retaliation “must show that a reasonable employee would have found the challenged
action materially adverse, which in this context means
it well might have dissuaded a reasonable worker from
making or supporting a charge of discrimination.” Id.
at 2415 (internal quotes and citation omitted). The
Vol. 12, #13 July 3, 2007
Court emphasized the distinction between “significant” and “trivial” harms when it chose the “materially adverse” language. It noted that Title VII does
not prevent an employee complaining of employer
discrimination from experiencing “petty slights or
minor annoyances that often take place at work and
that all employees experience,” id., since these do not
normally deter employees from reporting discrimination or participating in complaints.
Burlington Northern’s rationale may well be extended
by the courts to retaliation claims under other statutes, such as the Americans with Disabilities Act, the
Age Discrimination in Employment Act, the Equal
Pay Act, and the many other federal statutes that
use anti-retaliation language similar to that of Title
VII. In the course of its discussion in Burlington
Northern, the Court drew an analogy between the
anti-retaliation provision of Title VII and that of the
NLRA, which the Court had previously interpreted
with similar breadth. See, id. at 2414; Bill Johnson’s
Restaurants, Inc. v. NLRB, 461 U.S. 731, 740 (1983)
(finding the Court’s liberal construction of anti-retaliation provisions such as the NLRA’s to prohibit
“a wide variety of employer conduct that is intended
to restrain, or that has the likely effect of restraining,
employees in the exercise of protected activities.”).
The clear implication is that the Burlington Northern
holding will reverberate well beyond Title VII, and so
employers’ exposure will be expanded accordingly.
B.
The Sarbanes-Oxley Act
Most discussions of the insurance implications of the
statute commonly referred to as the Sarbanes-Oxley
Act of 2002 (“SOX”)1 focus on coverage issues under
Directors & Officers policies. The coverage implications of the anti-retaliation provisions of SOX under
EPL policies are worth careful attention as well.
Section 806 of SOX, codified at 18 U.S.C. § 1514A,
creates a new federal civil private cause of action for
employees of public companies who have been retaliated against because of any “lawful act” done to
provide information to the government or to assist
in a proceeding filed or about to be filed relating to,
inter alia, fraud against shareholders or violations of
Securities and Exchange Commission rules or regulations. Specifically, Section 806 provides that no public company or their officers, employees, contractors,
subcontractors, and agents “may discharge, demote,
MEALEY’S Emerging Insurance Disputes
Vol. 12, #13 July 3, 2007
suspend, threaten, harass, or in any manner discriminate against an employee in the terms and conditions
of employment because of any lawful act done by the
employee . . .” with respect to disclosing corporate
securities fraud and other related wrongs. Remedies
for violations of Section 806 include compensatory
damages, back pay, attorneys’ fees and costs.2
SOX retaliation claims must first proceed in a fasttrack administrative proceeding and then may be filed
in federal court for a de novo review. An adequate
defense of such claims may involve both employment
lawyers and securities lawyers. For these reasons, and
others mentioned at the outset of this article, SOX
retaliation claims are likely to be costly to defend.
Accordingly, the defense coverage available under
EPL policies for a retaliation claim asserted under
SOX may be of significant value even if the claim
proves meritless and indemnification coverage is not
forthcoming.
IV.
Protecting Insurance Coverage
For Claims Of Employment-Related
Retaliation
In light of the Burlington Northern decision, the
anti-retaliation provisions of SOX, and the pervasiveness of retaliation claims, policyholders may find it
of some benefit to review all of their employmentrelated claims and their EPL policies to determine
if claims of retaliation have been made for which
coverage may be available. Such analysis may suggest
a clear path to retaliation coverage. Consider, for
example, a not uncommon National Labor Relations
Board (“NLRB”) charge that an employer threatened
to terminate an employee who had filed an earlier
NLRB charge, or that an employer fired an employee
because the employee assisted union supporters by
testifying before the NLRB. Under the anti-retaliation provision of the NLRA (which prohibits employers from “discharg[ing] or otherwise discriminat[ing]
against an employee” who has filed charges or given
testimony relating to a substantive NLRA violation,
29 U.S.C. § 158(a)(4)) and any commonly understood meaning of “retaliation,” these activities would
be prima facie forms of retaliation for which EPL
coverage is expressly preserved in common exceptions
to the NLRA exclusion.
In addition, policyholders often find it prudent to
take the following steps to preserve coverage for em
ployment-related retaliation claims, including SOX
retaliation claims:
•
provide prompt notice to the insurer of written
demands for legal redress, administrative proceedings, and complaints filed in court (this is
particularly important when a policy is written
on a “claims-made” basis, as virtually all EPL
policies are);
•
take immediate steps to preserve documents
that may be related to the claim, particularly
the claimant’s personnel file and electronic
documents that may otherwise be recoverable
only with great difficulty and expense;
•
collect all potentially relevant EPL (and other
potentially implicated) policies and have those
policies reviewed by coverage counsel; and
•
seek advice from coverage counsel on the conduct of the defense of the underlying claim
from an insurance coverage perspective, and
have coverage counsel and defense counsel cooperate in their efforts.
These initial steps may go a long way toward protecting a policyholder’s EPL coverage for retaliation
claims.
V.
Conclusion
Like revenge, retaliation is often its own punishment.
This is especially true in today’s legal environment,
when numerous federal and state statutes give employees substantial rights to redress for an employer’s
retaliation. Fortunately, corporate policyholders may
obtain defense or indemnity coverage for retaliation claims under their EPL policies even when the
principal claim is otherwise excluded from coverage.
Accordingly, when assessing insurance coverage for an
employment-related claim, employers, risk managers,
and counsel may find it beneficial to pay particular
attention to coverage for any associated retaliation
claims. The anti-retaliation provisions of SOX and
the United States Supreme Court’s recent expansion
of employees’ rights to assert actionable retaliation
claims suggests that the number of such claims will
increase and that these claims may play an increasingly important role in insurance coverage disputes
under EPL policies.
MEALEY’S Emerging Insurance Disputes
Endnotes
1.
The formal title of the act is The Public Company
Accounting Reform and Investor Protection Act of
2002. Pub. L. 107-204, 116 Stat. 745 (2002).
2.
Section 1107 of SOX creates a new criminal cause
of action for knowing and intentional retaliation
against any person who provides any truthful
information relating to the commission or possible commission “of any Federal offense.” There
Vol. 12, #13 July 3, 2007
may be EPL coverage for SOX criminal retaliation
claims, depending on whether the policy in question excludes criminal acts coverage or coverage
for fines and penalties and whether under applicable law the carrier may indemnify an insured for
proven criminal acts. Even if indemnity coverage
is not available for a Section 1107 violation, the
insured may be able to obtain defense coverage or
the periodic reimbursement of defense expenses,
depending on the language of the EPL policy’s
defense provisions. n