Insuring Title VII Violations

Many insurance carriers voluntarily provide Employment Related Practices Liability coverage to employers in order to allow the employers to shift the financial loss from discrimination claims onto the insurance carrier.  However, where the conduct causing the claim is intentional, most courts have deemed it against public policy to allow such insurance coverage because an individual without an insurance policy will be less likely to engage in intentional tortious conduct if the individual’s own assets are at risk.   These courts, then, have established that it is against public policy to allow an insured to collect from an insurance policy for damages resulting from its own intentional acts.   Although this general rule applies to all types of intentional conduct, it holds true for intentional employment discrimination on the theory that an employer whose own assets, rather than an insurance company’s, are at risk is less likely to intentionally discriminate in its employment decisions. 
The competing public policy argument is that innocent victims of discrimination sometimes would go uncompensated if insurance coverage were not allowed, particularly if the discrimination award would bankrupt the employer.  Therefore, some courts have allowed the insurance carrier to indemnify the employer.  Also, in order to compensate the innocent victim, some courts have imposed coverage on insurance carriers even though the insurance contract contains provisions that would preclude such coverage.  However, the policy argument favoring the compensation of victims does not always apply because in most cases the employer has sufficient assets to compensate the innocent victim without relying on insurance coverage.  
This article argues that both of these public policy arguments can be satisfied by allowing insurance coverage of catastrophic intentional discrimination claims when the employer demonstrates that it will be forced into bankruptcy if it is forced to compensate the innocent victim without the benefit of insurance coverage.  Part II of this article begins by exploring the purpose of Title VII, the types of discrimination claims that arise under this Act, and the general purpose of insurance policies particular to discrimination claims.  It then describes how insurers have attempted to avoid coverage for intentional discrimination in the traditional insurance contracts; how insurers have voluntarily developed insurance coverage for discrimination; and how courts have often imposed coverage for discrimination onto insurers despite provisions within the contract that would preclude coverage.  
Part III presents the public policy issues pertaining to insuring Title VII violations.  It surveys the development of the law that prohibits insuring against intentional conduct and the exceptions that have arisen in that law to facilitate compensation of innocent victims.  The survey presents the three ways courts have dealt with this issue:  First, holding that insuring intentional discrimination is against public policy; second, holding that insuring intentional discrimination is not against public policy; and third, acknowledging that insuring intentional discrimination is against public policy, but allowing an exception when an employer is held vicariously liable for the intentional discriminatory acts of its employees.   
Part IV proposes that insurers should not be allowed to indemnify employers for their intentional discrimination except when the employer demonstrates to the court that it faces insolvency if it is forced to compensate the innocent victim without insurance coverage.  This approach acknowledges the public policy against insuring intentional conduct, yet serves the public interest of compensating innocent third parties.  This article concludes in Part V with a discussion of the benefits of holding employers accountable for their intentional conduct, whether directly committed or committed through their employees.  By doing so, the primary purpose of Title VII will be promoted.