Discrimination and Wrongful Termination

Although workers’ compensation coverage affords insurance for injuries and disease incurred in the employment relationship, it does not extend to other employment-related claims, such as claims of discrimination or wrongful termination. When these claims arise, insureds are often left with non-covered exposures, as many typical business policies do not afford coverage for such employment-related claims.

For instance, workers’ compensation coverage is usually accompanied and complemented by employers’ liability coverage. The employers’ liability part affords coverage for some employee claims outside of the workers’ compensation statute. Most commonly, in Texas, this coverage applies to claims for punitive damages in a wrongful death situation, which are not barred by the workers’ compensation statute and can be asserted in separate civil litigation. The employers’ liability coverage part, however, applies only to bodily injury by accident or bodily injury by disease. Most discrimination or wrongful termination claims do not involve an “accident” or “bodily injury.” An exclusion applies to intentional bodily injury, and includes a specific exclusion providing that it does not extend to claims for damages arising out of “…discrimination against or termination of any employee…”

The commercial general liability policy is designed to dovetail with workers’ compensation coverage, and therefore excludes most injuries to employees. The principal coverage part, which extends to bodily injury or property damage arising from an occurrence, specifically excludes “any obligation of the insured under a workers’ compensation, disability benefits or unemployment compensation law or any similar law,” and also excludes coverage for bodily injury to an employee arising out of and in the course of employment. Moreover, the definition of insured excludes injuries to a co-employee, precluding coverage for the individuals who may be named. In the instance of a claim of discrimination or wrongful termination, it is unlikely the claim would even fall within the scope of coverage, as the conduct is intentional. While there is some authority suggesting that “impact” discrimination may be an occurrence, these claims typically result in economic damage, not bodily injury or property damage. Even if these hurdles are met, the exclusion for injury to an employee would likely apply. In addition, many general liability policies are now endorsed with an exclusion for employment-related practices, which specifically addresses, and excludes, discrimination and termination claims under both Coverage A (bodily injury and property damage liability) and Coverage B (personal and advertising injury liability). Under Coverage B, only enumerated offenses are covered. While some of these, such as the defamation offenses, may arise in an employment dispute, discrimination and wrongful termination are not specifically included among the enumerated offenses.

Often, additional coverage is afforded through employee benefits liability endorsements. These endorsements provide “stand alone” coverage, and are usually included with other policies, typically general liability policies. The coverage under these endorsements usually provides limited coverage for negligent acts, errors or omissions in the administration of employee benefit plans—such as health insurance and retirement plans. This coverage will not extend, in most instances, to claims of wrongful termination and discrimination. Most courts have determined that discrimination or termination is intentional, and not a negligent act, error or omission. Accordingly, even secondary claims for loss of benefits, associated with discrimination or termination, would not be covered since they stem from intentional conduct. Moreover, many employee benefits liability forms specifically exclude claims of discrimination from coverage.

Under many common coverages, then, an insured may be totally unprotected from claims of discrimination and wrongful termination. Of course, there is specific insurance that can be purchased for these claims, in the form of an employment practices liability insurance policy. These policies are typically written to extend to employment-related claims that are not within the workers compensation scheme. Further, while there are certain exclusions, and while the coverage is written on a claims-made basis in most instances, intentional conduct, such as discrimination or termination, is specifically covered. In the absence of EPLI insurance, however, an insured may be hard-pressed to find coverage when a claim of wrongful termination or discrimination is asserted.

Bradley is a partner in the Dallas office of Thompson, Coe, Cousins & Irons, L.L.P. She is a member of the Insurance Litigation and Coverage Section and leads the firm’s coverage practice. She has represented agents in disputes with policyholders and insurers and routinely represents insurers in evaluating and litigating coverage issues under general and professional liability policies, commercial auto and trucking policies, commercial property policies and homeowners policies.

Topics Claims Workers' Compensation Professional Liability