The Second Circuit has issued a summary affirmance declaring that gender-based employment discrimination claims against a clothing retailer were subject to a "prior acts" exclusion in light of the fact that the discriminatory guideline in question had been adopted prior to the issuance of Ironshore's policy. The case is Knox v. Ironshore Ind. Co., No. 21-3032 (2d Cir. June 23, 2022).
Prior to 2005, clothing company Varvatos offered clothing for both men and women, requiring both male and female employees to wear Varvatos closing to work, and gave both male and female employees an allowance to purchase its clothing to wear at work. In 2005, Veratos discontinued its women's clothing line, rescinded its requirement that female sales employees wear Varvatos clothing at work, and ceased to provide a clothing allowance to female sales employees. Under the new policy, male employees were entitled to obtain $12,000 in Varvatos clothing annually, dolled out in $3,000 per quarter increments. Female employees were excluded from this policy. This continued until sometime after 2012, when Varvatos began to offer to female sales employees, but not male sales employees, a discount at a related retailer, Allsaints, but continued to withhold the clothing allowance from female associates. Under the new policy, female employees could purchase up to $2,500 of merchandise from Allsaints every six months at a 50% discount from the retail price.
In 2017, plaintiff Knox filed the underlying litigation against Varvatos alleging that the retailer's policy of providing a clothing allowance to male employees and not female employees violated federal and New York state laws prohibiting pay discrimination. The jury found Varvatos liable for violating federal and New York civil rights law and awarded damages on a per-employee basis.
On May 16, 2016, Ironshore issued a Directors Officers and Private Company Liability Insurance Policy Including Employment Practice Claims Coverage policy to Varvatos. The policy required Ironshore to indemnify Varvatos for "Loss" that it incurred as a result of civil litigation resulting from Varvatos' "Wrongful Act[s]" during the term of the policy. Wrongful Act includes discrimination, violation of the Equal Pay Act, and violation of an Employee's civil rights relating to any of the above. The policy also includes a Prior Acts Exclusion, which provides that Ironshore:
shall not be liable to make any payment for Loss in connection with any [civil litigation] for any Wrongful Act which occurred prior to April 30, 2012. Loss arising out of the same Wrongful Act or Wrongful Acts shall be deemed to arise from the first such Wrongful Act. The term "Related Wrongful Acts" is defined as Wrongful Acts which are the same, related, or continuous, or Wrongful Acts which arise from a common nucleus of facts. Claims can allege Related Wrongful Acts regardless of whether such Claims involve the same or different claimants, Insureds, or legal causes of action.
The policy became effective on April 30, 2016, and expired on April 30, 2017. The litigation began on February 1, 2017.
The second circuit held that the district court correctly found that the insurance policy unambiguously excluded coverage for the underlying judgment against the clothing retailer because the clothing retailer instituted the discriminatory clothing allowance prior to April 30, 2012, and maintained it after that date. Moreover, the same insurance policy both before and after that date was plainly the same, related, or continuous, under any reasonable interpretation of that phrase. The court also found that the complaint failed to state a claim under New York law because the policy at issue excluded coverage for the judgment against the clothing retailer.
Editor's Note: In this case, the court agreed with the district court that the Prior Acts Exclusion unambiguously excluded coverage for the underlying judgment against Varvatos because Varvatos instituted the clothing allowance prior to April 30, 2012, and maintained the practice after that date. The same policy both before and after that date is plainly "the same, related or continuous" under any reasonable interpretation of the phrase. Even though Varvatos attempted to remedy the issue by granting the female employees a discount, that does not alter the conclusion, because nothing about the male's allowance changed, and the discount offered to females was not comparable to the clothing allowance offered to the male employees.