EPL and D&O Policies: Wrongful Acts Trigger

EPL and D&O policies normally cover a finite number of “wrongful acts” or “wrongful practices.” This is conceptually similar to CGL Coverage B for Advertising Injury and Personal Injury, with its finite enumerated covered torts.

Common EPL “wrongful acts” include: (1) discrimination, (2) harassment, (3) wrongful termination, (4) failure to hire and promote, (5) defamation, (6) invasion of privacy and confidentiality, (7) negligent hiring and supervision, and (8) retaliation and reprisal. Britton Weimer, Eric Satre, Andrew Whitman, and T. Michael Speidel, Employment Practices Liability, 2d ed.?pp. 21-22 (National Underwriter 2012).

Common D&O “wrongful acts” are somewhat broader and frequently include: (1) errors, (2) omissions, (3) misstatements, (4) breach of duty, (5) breach of trust, and (6) neglect. Indeed, many D&O “wrongful acts” are so broadly written that “the exclusions in the policy in a sense define the coverage more than any other coverage provisions.” Clarance Hagglund, Britton Weimer and Joseph Monteleone, Directors & Officers Liability, p. 111 (National Underwriter 1999).

Many D&O and EPL policies limit coverage for wrongful acts to an individual insured acting “solely in an insured capacity.” For example, in Nicholls v. Zurich American Ins. Group, 244 F.Supp.2d 1144, 1155 (D. Colo. 2003), the Zurich American D&O policy limited “Wrongful Acts” to an error, misstatement, misleading statement, act, omission, neglect, or breach of duty actually or allegedly committed or attempted “by any of the Insured Persons, individually or otherwise, in their Insured Capacity, or any matter claimed against them solely by reason of their serving in such Insured Capacity.” Thus, where joint officers and directors of debtor-corporation and its parent, in engaging in sham stock transaction that formed basis of claims asserted by trustee, were acting in their capacity as officers and directors not of debtor, but of corporate parent, the D & O policy did not apply.

Some complex cases will involve a mix of defendants in their insured capacities and defendants who are not insureds or not acting in their insured capacities, creating allocation challenges. In Vicorp Restaurants, Inc. v. Federal Ins. Co., 1993 WL 736918 (D. Colo. 1993),?the Colorado federal court addressed the allocation among insured directors and officers, and the uninsured corporate employer in the D&O insurance policy context. Courts that have addressed this issue have consistently held that allocation is appropriate between insured and uninsured wrongdoers. Id.?at *1, citing?Harbor Ins. Co. v. Continental Bank Corp.,?922 F.2d 357 (7th Cir. 1990). Allocation, however, is not appropriate when an uninsured corporation's liability is wholly derivative from the insured officer's or director's acts.

Brit Weimer?is a commercial insurance coverage and defense attorney with Weimer & Weeding, practicing in Minnesota, Colorado and Wisconsin. Feel free to contact him with questions about this article!