Acts Arising from Discrimination

Most employment-related claims are not commonly covered by general liability policies. Even if a general liability policy does not contain an employment-related practices exclusion, coverage could still be barred by the intentional acts exclusion. For instance, the ISO commercial general liability (CGL) coverage form excludes bodily injury or property damage that is expected or intended from the standpoint of the insured. The form also contains an exclusion for personal injury for knowingly violating the rights of another. Both of these exclusions require intent or knowledge that the act will cause harm.

Couch on Insurance, Third Edition, states that whether an act of discrimination is subject to an intentional acts exclusions depends on the type claim. Couch describes two theories of discrimination—disparate treatment and disparate impact—and says, “While an intentional acts exclusion necessarily bars coverage for disparate treatment discrimination, claims of discrimination based on disparate impact, which do not require a showing of discriminatory intent, can encompass actions, judgments, or decisions that might be considered mere negligent acts under the policy and are not precluded from coverage.”

Disparate treatment involves singling out a group and treating them less favorably than others who are similarly situated while disparate impact deals with the consequences of a practice that does not appear to be discriminatory on its face, but the application of the practice has an adverse impact on members of a minority group.

Of course, discriminatory acts are not limited to the employer-employee relationship and can occur in many other contexts. Consider the Wisconsin case of Gatlin v. Delux Entertainment, LLC, 2010 WL 1904984. Five African-American men alleged they were refused entry into the insured's nightclub because of their race on several occasions. The men filed a lawsuit based on alleged racial discrimination in a place of public accommodation and discrimination in contractual relations, stating that the club implemented a policy of denying African-American customers the full and equal enjoyment of goods, services, facilities, privileges, advantages, and accommodations on the same basis as non-African-American customers.

Society Insurance Company provided coverage for the insured under a business owners' policy. The insurer argued that the complaint did not trigger a duty to defend because the claims did not arise out of an occurrence because the doormen's actions in refusing the men entry to the nightclub were not accidental. The insured countered that while refusing entry was a conscious decision rather than accidental, this did not mean that the insured intended to discriminate against the men.

The district court said that the insured assumed that a volitional act can constitute an accident (and thus, an occurrence) simply because the person committing the act did not intend to violate the law or inflict harm on the victim. Wisconsin courts have held that a volitional act is not an occurrence even if the actor did not intend to cause harm. Accordingly, because the complaint did not allege that the plaintiffs' injuries were caused by an accident, the complaint did not allege harm caused by an occurrence.

Jurisdictions generally agree that intended consequences of an intentional act are not occurrences, but some courts also hold that unintended results of intentional acts are covered occurrences. Other jurisdictions, like the court in Gatlin, oppose that view and say that it does not matter what the results were because the initial act was intended. Whether coverage applies could come down to the luck of geography.