The United States District Court for the District of Columbia, applying District of Columbia law, has held that a Notice of Charge of Discrimination issued by the United States Equal Employment Opportunity Commission (EEOC) constituted a "claim" as defined in a professional liability policy issued to a nonprofit labor union organization and, thus, the organization's failure to provide notice of the claim "as soon as practicable" to the insurer precluded coverage for litigation arising out of the EEOC proceeding. Am. Center for Int'l Labor Solidarity v. Fed. Ins. Co., 2007 WL 2985006 (D.D.C. Oct. 15, 2007).
The organization received two Notice of Charges from the EEOC based on allegations of race discrimination brought by a former employee. In the first Notice of Charge, the EEOC did not require the organization to respond, but in the second, the EEOC requested that the organization either participate in a mediation with the aggrieved employee or submit a position statement to the EEOC responding to the allegations in the Notice of Charge. The organization, which received the second Notice of Charge on November 14, 2002, chose to submit a position statement on December 19, 2002, but failed to notify the insurer of the EEOC proceeding or its position statement. On September 16, 2003, the EEOC dismissed the charge filed by the employee and issued a "Right-to-Sue" letter. The former employee sued the organization on December 13, 2003. The organization first notified the insurer of the lawsuit on January 20, 2004, but did not refer to the prior proceeding before the EEOC. When the insurer learned on March 31, 2004, about the prior EEOC proceeding, it declined coverage for the lawsuit. The organization then filed an action seeking coverage under the policy, and, after discovery, both parties moved for summary judgment.
The court first considered whether the EEOC proceeding constituted a "claim." The policy defined "claim," in relevant part, as a "formal administrative or regulatory proceeding commenced by the filing of a notice of charges, formal investigative order or similar document." The court held that, "as an initial matter, EEOC proceedings are unambiguously 'administrative proceedings'. . . and are also unambiguously 'commenced by a notice of charges.'" Thus, the real issue was whether the EEOC proceeding could be considered "formal" as the term was used in the policy. In that regard, the court observed that the EEOC proceedings were governed by regulations and statutes that granted the EEOC power to "receive evidence, listen to witness testimony, subpoena documents and witnesses, and initiate proceedings to compel enforcement." Additionally, some findings by the EEOC and submissions by parties in EEOC proceedings were admissible in subsequent litigation.
Despite the "trappings of formality" identified by the court, the organization argued that the EEOC proceedings could not be "formal" because the proceedings allowed for informal procedures, such as mediation, and because the EEOC could not adjudicate liability. The court rejected this position, reasoning that these differences simply differentiated an administrative proceeding from litigation, both of which were encompassed in different subparts of the definition of "claim." The court also rejected the organization's interpretation of the policy because excluding the EEOC proceeding at issue would require the court to interpret the policy's definition of "claim" to "exclude a subset of informal proceedings commenced by the filing of a 'formal investigative order.'"
The court considered many cases cited by the parties to be unpersuasive because they involved instances where courts described EEOC proceedings as "formal" or "informal" outside the context of interpreting those terms in an insurance policy. In contrast, the court found persuasive the reasoning in National Stock Exchange v. Federal Insurance Co., 2007 U.S. Dist. LEXIS 23876 (N.D. Ill. Mar. 30, 2007). The National Stock Exchange court had held that an investigation commenced by the United States Securities and Exchange Commission issuing a written request for production of documents and witness testimony constituted a "formal investigative proceeding." The court agreed with the rationale expressed in National Stock Exchange that it would be implausible to find that a "formal investigative order" issued by the EEOC did not initiate a "formal administrative or regulatory proceeding." The court also reasoned that to construe a "claim" to exclude an EEOC proceeding such as the one at issue here would be inconsistent with the insurer's rights under the policy to receive notice of a claim, to consent to the defense and settlement of a claim by the organization and to investigate and settle a claim.
After ruling that the EEOC proceeding constituted a claim, the court granted the insurer summary judgment because the organization had conceded that it did not provide notice of the EEOC proceeding "as soon as practicable." Finally, the court rejected the organization's argument that the policy should cover defense and settlement costs attributable to an individual executive at the organization who was not named in the prior EEOC proceeding but was named as a defendant in the subsequent litigation. The court observed that under the policy, all "causally connected Wrongful Acts" are deemed one loss. As such, the court held that there was only "a single loss to be claimed under the Policy, and not a separate 'claim' as to [the executive] individually."