Anyone who has clicked to a news website or turned on a TV inthe past few months has probably heard about celebrity chef PaulaDeen's controversy surrounding the use of racial slurs and theallegations brought against her and her brother by a formeremployee for race discrimination and a hostile work environmentbased on race.

Deen co-owns a restaurant with her brother, whom the plaintiff,Lisa Jackson, alleged violated her rights via “unremitting violent,sexist, and racist behavior.” She stated that management knew aboutthe behavior, yet did nothing to stop it.

Much has been said about how this incident will affect Deen'scareer. But how are discriminatory acts treated under insurancepolicies?

The Insurance Services Office (ISO) Employment-Related PracticesLiability Coverage form excludes coverage for wrongful acts thatviolate laws applicable to employers, such as Title VII of theCivil Rights Act of 1964, which prohibits discrimination by coveredemployers on the basis of race, color, religion, sex, or nationalorigin. ”Wrongful acts” are defined as, among other actions,“verbal, physical, mental or emotional abuse arising fromdiscrimination.” It is pretty clear that atypical EPL policy would not allow for coverage of acts such asthose alleged by Jackson in the Deen case.

Acts Arising from Discrimination

Most employment-related claims are not commonly covered bygeneral liability policies. Even if a general liability policy doesnot contain an employment-related practices exclusion, coveragecould still be barred by the intentional acts exclusion. Forinstance, the ISO commercial general liability (CGL) coverageform excludes bodily injury or property damage that is expected orintended from the standpoint of the insured. The form also containsan exclusion for personal injury for knowingly violating the rightsof another. Both of these exclusions require intent or knowledgethat the act will cause harm.

Couch on Insurance, Third Edition, states that whetheran act of discrimination is subject to an intentional actsexclusions depends on the type claim. Couch describes twotheories of discrimination—disparate treatment and disparateimpact—and says, “While an intentional acts exclusion necessarilybars coverage for disparate treatment discrimination, claims ofdiscrimination based on disparate impact, which do not require ashowing of discriminatory intent, can encompass actions, judgments,or decisions that might be considered mere negligent acts under thepolicy and are not precluded from coverage.”

Disparate treatment involves singling out a group and treatingthem less favorably than others who are similarly situated whiledisparate impact deals with the consequences of a practice thatdoes not appear to be discriminatory on its face, but theapplication of the practice has an adverse impact on members of aminority group.

Of course, discriminatory acts are not limited to theemployer-employee relationship and can occur in many othercontexts. Consider the Wisconsin case of Gatlin v. DeluxEntertainment, LLC, 2010 WL 1904984. Five African-American menalleged they were refused entry into the insured's nightclubbecause of their race on several occasions. The men filed a lawsuitbased on alleged racial discrimination in a place of publicaccommodation and discrimination in contractual relations, statingthat the club implemented a policy of denying African-Americancustomers the full and equal enjoyment of goods, services,facilities, privileges, advantages, and accommodations on the samebasis as non-African-American customers.

Society Insurance Company provided coverage for the insuredunder a businessowners policy. The insurer argued that thecomplaint did not trigger a duty to defend because the claims didnot arise out of an occurrence because the doormen's actions inrefusing the men entry to the nightclub were not accidental. Theinsured countered that while refusing entry was a consciousdecision rather than accidental, this did not mean that the insuredintended to discriminate against the men.

The district court said that the insured assumed that avolitional act can constitute an accident (and thus, an occurrence)simply because the person committing the act did not intend toviolate the law or inflict harm on the victim. Wisconsin courtshave held that a volitional act is not an occurrence even if theactor did not intend to cause harm. Accordingly, because thecomplaint did not allege that the plaintiffs' injuries were causedby an accident, the complaint did not allege harm caused by anoccurrence.

Jurisdictions generally agree that intended consequences of anintentional act are not occurrences, but some courts also hold thatunintended results of intentional acts are covered occurrences.Other jurisdictions, like the court in Gatlin,oppose that view and say that it does not matter what the resultswere because the initial act was intended. Whether coverageapplies could come down to the luck ofgeography.