2^nd Cir. Holds Insurer Must Defend Insured Against ERISA Claim Even Though Intentional Wrongdoing Alleged In Non-ERISA Claims

The 2^nd Circuit Court of Appeals reversed a district court’s grant of summary judgment in favor of Hartford Casualty Insurance Company (Harford), finding the broad duty to defend under New York Law required Hartford to defend its policyholder against an ERISA claim.

Euchner-USA, Inc., its CEO, and its 401(k) plan (collectively, Euchner) were sued by a former employee who claimed she was sexually harassed and coerced into accepting an independent contractor position, thereby disqualifying her from receiving a number of benefits reserved for the company’s employees.  The former employee sued Euchner for, among other things, misclassification of a former employee as an independent contractor in violation of ERISA.

Hartford issued Euchner a CGL policy with an endorsement covering the company’s employee benefits program.  Hartford, however, disclaimed coverage based on, among other reasons, the policy’s exclusion for wrongful conduct.  Hartford claimed that the exclusion applied, because the amended complaint alleged that Euchner “unlawfully and with discriminatory intent terminated Plaintiff as an employee and fraudulently, unwillingly and wrongfully coerced Plaintiff into entering into an Independent Sales Manager Representative Agreement.”  In rejecting this argument, the Court held:  “It was alleged only that Euchner misclassified her position; it was not alleged whether this misclassification was done intentionally or negligently.  The complaint contained allegations that bespeak malice; but none of Scali’s ERISA claims alleged that Euchner improperly classified her with the purpose of interfering with her retirement benefits.”  Thus, because the Court held that there was a reasonable possibility that Scali’s ERISA claim arose from negligence, the Court found Hartford had a duty to defend.

This case demonstrates the exceptionally broad nature of an insurer’s duty to defend under New York law, and the need to analyze the duty to defend on a count-by-count basis, as compared to considering the allegations of a complaint as a whole.  Euchner-USA, Inc. v. Hartford Casualty Ins. Co., No. 13-cv-2021 (2^nd Cir. June 10, 2014).