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At the end of 2023, a California federal court ruled in coverage litigation that an insured could not look to its employment practices liability (EPL) policy for willful acts coverage. The facts of the underlying employment case were as follows.
A former employee alleged that his employer, a citrus growing and packaging company, made defamatory statements that he was involved in criminal activity and had stolen from them. A jury agreed that the employer defamed the employee and that he should recover more than $4.9 million. After the employer paid the judgment, it looked to its insurer for indemnification of the damage award under the provision of its EPL contract covering “employment-related torts.” While the insurer defended the underlying action, it refused to cover the damage award, spurring the employer to file a lawsuit against them for denial of coverage. During this subsequent lawsuit, a California District Judge cited the state’s Insurance Code Section 533, which prohibits indemnification coverage when it relates to willful acts. The court held that defamation, by its nature, requires the active step of disseminating information, making it a willful or intentional act.
This case shows that, at least in California, there is precedent for allowing a potential Insurance Code violation to override coverage for willful or intentional acts. As a result, companies should work closely with their insurance broker to consider techniques such as favorable venue wording specific to both intentional acts and punitive damages, off-shore wrap policies, or placing their entire program off-shore to help ensure the broadest coverage possible for employment practices claims. If you have questions about or are interested in obtaining coverage, please contact your Aon broker.
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