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Bickering Means Billables in Sexual Harassment Indemnity Dispute

By Robyn Hagan Cain on December 17, 2012 | Last updated on March 21, 2019

Don't you just hate it when the boss-man at a company has been sexually harassing employees for so long that no one can pinpoint when the harassment started, and everyone starts bickering about whether or not the company's wrongful employment practices policy covers his saucy antics?

It's the worst.

But if you're a lawyer for either the boss-man's company or the insurance company, that bickering means billables because the case is unlikely to be resolved in summary judgment.

Let's turn to a practical example of this theory from the First Circuit Court of Appeals.

Luciano Manganella used to be the president of Jasmine Company, a clothing retailer. Donna Burgess was Jasmine's human resources manager from 1997 to 2006. In 2007, Burgess sued Manganella, Jasmine, and Lerner New York (Jasmine's new parent company) for discrimination, alleging physical and verbal sexual harassment (including coerced sexual activity). In 2008, Jasmine settled with Burgess for $300,000 and an affidavit stating that Manganella's conduct that "formed the basis" of her claim didn't begin until October 1999.

That affidavit was super convenient because Jasmine had a policy with Evanston Insurance Company, which covered the company (and Manganella) from April 1999 through April 2006. Jasmine had also purchased an extended reporting period, so Evanston would be required to indemnify Jasmine for Burgess' claim if Jasmine could prove that the conduct "that allegedly culminated" in the wrongful employment practice happened in its entirety between April 1999 and April 2006.

Evanston was only required to reimburse Jasmine for the settlement if Manganella's conduct began after April 1999.

Evanston had already denied coverage for Burgess' claim before the settlement because it was "apparent" that the harassment didn't "happen in its entirety" after the retroactive date for coverage. According to the First Circuit Court of Appeals, Burgess' affidavit stating otherwise didn't resolve the matter. Aside from the fact that the affidavit was inadmissible in the appeal, the court noted the possibility that Jasmine and Burgess could have colluded against Evanston to swap an affidavit for a settlement.

The First Circuit reasoned that the dispositive question was whether there was any material issue of fact as to whether Manganella's conduct began after the policy's retroactive date. Here, the court concluded that the neither party was entitled to judgment as a matter of law based on the undisputed facts.

It would be helpful if the world's shady bosses would just note on their calendars when they begin harassing their employees; it would save a ton of time in discovery on these insurance claims. But until that happens, these types of cases are unlikely to be decided in summary judgment.

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