In Hamilton Specialty Insurance Company, Inc. v. Kinsale Insurance Co., 19-cv-5548, 2020 WL 1876358 (S.D.N.Y. April 15, 2020), the court held that a claim arising from an employment discrimination lawsuit was subject to an exclusion under an insurance policy (specifically, that policy’s “criminal act exclusion”).
Here, the plaintiff (Hamilton) is an insurance company suing another insurance company (Kinsale), seeking a declaratory judgment that plaintiff is entitled to reimbursement for a share of settlement and defense costs it paid on behalf of Sway Lounge, LLC d/b/a Paul’s Casablanca in an underlying action in which a Sway employee sued Sway for sexual assault allegedly committed by its general manager.
Sway had insurance policies with both Hamilton and Kinsale. According to the decision, Sway settled with the worker for $850,000, and Hamilton spent $34,273.04 in defense costs.
The Kinsale policy, inter alia, covered “wrongful acts” including, but not limited to, an “abusive or hostile work environment”. It also, contained a section entitled “Exclusions,” under which it states that the policy “does not apply to, among other things, any claim for loss ‘[b]ased upon, arising out of or in any way involving any criminal act.'”
After reviewing legal principles governing the interpretation of insurance contracts under New York law, the court concluded that Kinsale was “not required to cover the costs sought by Hamilton because coverage of those costs is excluded pursuant to the Kinsale Policy’s Criminal Act Exclusion.”
From the decision:
The Criminal Act Exclusion of the Kinsale Policy unambiguously excludes coverage of the Underlying Action. Eliasson’s claims against the defendants in the Underlying Action would not exist but for the sexual assault by Menendez. The conclusion that coverage is excluded is bolstered by the clause of the Criminal Act Exclusion excluding claims “in any way involving any criminal act.” There can be no doubt that all of the claims alleged in the Underlying Action, including those of hostile work environment, sexual harassment, gender discrimination, and retaliation, “involve[ed]” in some way the sexual assault by Menendez. Because the language of the policy controls, the Criminal Act Exclusion must be read to exclude coverage of the Underlying Action. [Citation omitted]
The court rejected Hamilton’s arguments for a different result. For example, in response to its argument that the Criminal Act Exclusion is not applicable because the alleged assailant was not criminally prosecuted for the sexual assault, reasoning that the exclusion “plainly states that it is a criminal ‘act,’ not a criminal indictment or conviction, that triggers the exclusion.”