General Liability Coverage and Discrimination
Discrimination Is An Intentional Act, Not an Accident
Many of the lawsuits filed against businesses every year are based on allegations of discrimination. Businesses can be sued by employees, customers, contractors, and other third parties. Most businesses are insured for liability under a general liability policy. As the following example demonstrates, however, general liability insurance isn't likely to cover a discrimination claim.
Hal is a part-owner of Happy Healthcare Supplies, a wholesale distributor of healthcare products. Business has been good and Hal recently hired two new sales representatives. Hal also promoted Samantha, an ambitious 25-year-old to a sales management position. Hal is pleased with the personnel changes and assumes his workers are as well. He learns otherwise when a senior sales representative sues him for age discrimination.
The plaintiff (Richard) has worked at Happy Healthcare for ten years. His suit alleges that Hal discriminated against him based on his age (55) when he promoted a younger, less qualified worker than Richard to the management position. Richard claims that he should have been promoted over Samantha because he has more education, broader experience, and a longer tenure at Happy Healthcare than she has. Richard demands $40,000 in compensation for the difference between his current pay and benefits, and those he would have received had he been promoted.
Not Covered By General Liability Policies
Happy Healthcare is insured for general liability under a policy issued by the A-One Insurance Company. Hal scrutinizes the policy but cannot find any exclusions related to discrimination. He concludes that Richard's claim must be covered and forwards it to A-One. He is surprised when the insurer promptly denies coverage. There are two main reasons why Richard's claim isn't covered.
I. Not A Covered Injury
First, Richard's lawsuit seeks damages for economic losses like back pay, loss of future earnings, and lost benefits. To be covered under a general liability policy, a claim must seek damages for bodily injury, property damage or personal and advertising injury. Richard's lawsuit doesn't qualify for coverage because it has not alleged any type of covered injury.
Suppose that Richard's lawsuit also seeks damages for psychological injuries like mental anguish, mental injury, and emotional distress? Do these injuries qualify as bodily injury? Some liability policies cover certain mental injuries via their definition of bodily injury but only if they result from a physical injury. Even if his injuries qualified as bodily injury, Richard's claim would be subject to the employers liability exclusion. This exclusion eliminates coverage for claims filed against an employer by an employee.
II. Not Accidental
There is a second reason why Richard's claim is not covered. General liability policies cover injury or damage that results from an occurrence (accidental event) and discrimination doesn't usually occur accidentally. Rather, discrimination results from intentional acts committed by employers. In the previous scenario, Richard's suit is based on Hal's intentional acts (promoting Samantha rather than Richard).
Although the standard general liability form does not contain a discrimination exclusion, insurers may add an exclusionary endorsement to the policy. An example is the ISO employment-related practices exclusion endorsement, which eliminates coverage for discrimination and other employment practices under both Bodily Injury and Property Damage Liability and Personal and Advertising Injury Liability coverages.
Discrimination Not Related to Employment
Small businesses can be sued for discrimination by people other than employees. These include customers, suppliers, contractors, and other business associates.
For example, David is a sales representative at Happy Healthcare. During a sales call with a customer, David gets into a religious debate. He makes a derogatory remark about the customer's religion and then slams out the door shouting, "I won't do business with people like you!" If the customer sues Happy Healthcare for religious discrimination, the suit won't be covered under the firm's general liability policy.
Discrimination Coverage Under Umbrella Policies
Some commercial umbrella policies afford coverage for certain types of discrimination under Personal and Advertising Injury Liability. Coverage generally applies only to discrimination that is not related to employment. Note that some state laws prohibit insurance that covers discriminatory acts. For this reason, an umbrella may state that it covers discrimination only to the extent such insurance is permitted by law.
Employment Practices Liability Coverage
You can protect your business against claims arising from discrimination and other employment practices by purchasing employment practices liability (EPL) coverage. Some ELP policies cover claims filed by employees as well as those filed by third parties other than employees.