Between the Lines

A Discussion of Case Law and Statutory Law Affecting Commercial Lines of Insurance

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First Circuit Frowns on Affidavit Obtained From Claimant by Insured as Part of Settlement, Holds Coverage for Settlement Is Issue for Trial

In another win for Anderson & Kreiger, the First Circuit vacated the District Court’s summary judgment that a corporate insured’s settlement of an employee’s sexual harassment claim was covered under an employment practices liability (EPL) policy, and sent the case back for trial. This blogger’s earlier win finding no coverage for the individual wrongdoer in the same case was reported here.

The case addresses two vexing issues with respect to an insurer’s duty to indemnify. First, what are the facts pertinent to that issue and how are they established for coverage purposes when the underlying liability is established by a settlement rather than a judgment? Second, what may a claimant and an insured do to affect that analysis in the process of settling a claim?

After Jasmine Company, Inc. settled the sexual harassment charge that had been filed against it by the employee, Jasmine claimed the settlement was covered under an Evanston Insurance Company EPL policy. The policy covered wrongful conduct only if all of the conduct happened after the retroactive date. The District Court ruled that Evanston breached the duty to defend and therefore shifted the burden to Evanston to prove that the settlement was not covered, citing Polaroid Corp. v. Travelers Indem. Co., 414 Mass. 747 (1993).

The District Court determined that Evanston could not meet that burden and entered summary judgment in favor of the insured. Evanston asserted that, at a minimum, it was entitled to a trial on that issue. The First Circuit addressed the affidavit obtained by Jasmine from the employee as part of their settlement. In the affidavit, the claimant said that, although the company president made sexually suggestive comments before the retroactive date, her claim was based on conduct that happened after that date.

The First Circuit acknowledged Evanston’s concern over “the prospect of claimants and insureds colluding against insurers by swapping such statements for settlement money.” Although the First Circuit declined to rule that such settlement-related affidavits always are inadmissible, the Court held that this particular affidavit was inadmissible because the claimant’s subjective intent as to the scope of her claim was not relevant.

In the absence of the affidavit the First Circuit ruled that neither party was entitled to summary judgment on the issue whether the conduct underlying the charge did or did not begin before the retroactive date, vacated the judgment for the insured, and remanded the issue for trial.

The case is Manganella v. Evanston Insurance Company, _ F.3d _ (2012) (slip op. December 14, 2012).

Harvey Nosowitz
(617) 621-6555

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Harvey Nosowitz


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