No Coverage for Employment Lawsuit Where Insured Failed to Notice Earlier EEOC Charges

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The United States District Court for the Western District of Washington, applying Washington law, has held that an insured’s late notice of a claim bars coverage, rejecting arguments that (i) coverage applied because the prior and pending litigation provision did not exclude coverage, (ii) the insurer could not relate a claim back to a prior claim to bar coverage, and (iii) the notice-prejudice rule applied. Faithlife Corp. v. Phila. Indem. Ins. Co., 2020 WL 7385722 (W.D. Wash. Dec. 16, 2020).

In 2016, the insured software company learned that two former employees filed EEOC charges alleging discrimination. The software company did not provide notice of these charges to its insurer, and the charges were later withdrawn. A year later, the same former employees filed an employment discrimination lawsuit against the software company. The software company provided notice to its insurer, which denied coverage on late notice grounds. Thereafter, the software company filed a declaratory judgment action against its insurer.

Relying on the notice and related claims language of the applicable claims-made-and-reported policies, the court concluded that the lawsuit was related to the EEOC charges, and that the lawsuit therefore constituted a “claim” first made at the time the policyholder learned of the EEOC charges. Because the insured failed to provide timely notice of the EEOC charges during the applicable policy period, the court held that the lawsuit was precluded from coverage.

In so holding, the court rejected the argument that coverage applied because the policies’ prior and pending litigation exclusion did not preclude coverage for the lawsuit. The court explained that the exclusion did not ensure coverage for all claims outside of its sweep and that late notice otherwise precluded coverage. The court also disagreed that it was somehow inequitable to require the insured to have provided notice of the EEOC charges, noting that the same insurer was on the risk at the time of both the EEOC charges and the subsequent lawsuit. Finally, finding the suggestion contrary to Washington law, the court declined to extend the notice-prejudice rule to claims-made policies in instances where the insured continued coverage under separate, consecutive claims-made policies.

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