While the Michigan Court of Appeals restricted employers' ability to reduce their exposure to discrimination claims through the arbitration approach (see previous article), the U.S. Sixth Circuit recently approved another avenue -- insurance for discrimination claims.
In North Bank v Cincinnati Ins. Cos., the Sixth Circuit found that a discrimination claim by an employee against a company was covered by an insurance policy, and that the policy was legally enforceable.
North Bank was sued by a former employee for age and handicap discrimination, and for contract claims and loss of consortium. The handicap discrimination and loss of consortium claims were the only ones which survived summary disposition. North Bank then settled the claims and requested that Cincinnati Ins. Co. pay the cost of settlement and North Bank's attorney fees under its umbrella policy. The insurance company refused to indemnify the bank, stating that the policy covered claims of "discrimination," but excluded "discrimination committed by or at the direction" of the bank.
The Sixth Circuit held that the insurance policy was internally inconsistent and created the impression that it did cover claims for intentional discrimination. The court concluded that the ambiguity must be resolved in favor of the insured.
For many years courts had struck down insurance policies covering an intentional act, concluding that they violate public policy. This issue was frequently raised in such areas as antitrust cases and intentional discrimination allegations. In North Bank, however, the Sixth Circuit concurred with the recent legal trend of holding that insurance for discrimination claims does not violate public policy.
In light of this ruling, employers may want to consider the viability of using insurance for discrimination claims.