The Connecticut Supreme Court recently affirmed summary judgment in favor of an insurance company on the basis that a wrongful termination lawsuit against an insured was related to a prior administrative action for unemployment benefits and was therefore excluded by the policy.  National Waste Associates, LLC v. Travelers Casualty and Surety Co. of America, SC 18380 (Conn. Jan. 19, 2010).

An action alleging wrongful discharge was filed against the plaintiff by its former employee.  The plaintiff made a claim against the defendant insurer under a claims-made employment practices liability insurance policy.  The insurer declined to provide a defense or indemnity in connection with that action, and the plaintiff commenced a lawsuit against its insurer.

The insurer moved for summary judgment on the basis that it had no duty to defend or indemnify the plaintiff based on exclusion 5 of the policy.  Exclusion 5 of the policy provides:  “This [l]iability [c]overage shall not apply to, and the [defendant] shall have no duty to defend or to pay, advance or reimburse [d]efense [e]xpenses for, any [c]laim . . . based upon, alleging, arising out of, or in any way relating to, directly or indirectly, any fact, circumstance, situation, transaction, event or [w]rongful [a]ct underlying or alleged in any prior or pending civil, criminal, administrative or regulatory proceeding, including audits initiated by the Office of Federal Contract Compliance Programs, against any [i]nsured as of or prior to the applicable [p]rior and [p]ending [p]roceeding [d]ate set forth in [the policy declarations] ….”  (Emphasis in original.)  The insurer argued that exclusion 5 applied to bar coverage because the plaintiff had been a party to an administrative action in front of the State of Connecticut, Department of Labor, Employment Security Appeals Division, which action involved a claim for unemployment benefits by the same former employee, which action included allegations that the former employee had been wrongfully discharged by the plaintiff, and which action had not been disclosed on the plaintiff’s insurance policy application.

The trial court agreed with the insurer that the unemployment benefit proceedings “clearly constituted ‘administrative proceedings’ within the meaning of the policy” and granted the insurer’s motion for summary judgment based on exclusion 5.  In reaching its conclusion, the trial court “generally considered the purpose and function of ‘claims-made’ insurance policies such as the one at issue here, and it relied on jurisprudence involving similar policy terms and analogous agency proceedings, and Connecticut courts’ repeated characterization of unemployment proceedings as ‘administrative.’”

The Supreme Court affirmed the judgment of the trial court for the reasons addressed by the trial court.

A copy of the Supreme Court opinion is available here, and a copy of the trial court opinion is available here.