Thursday, June 29, 2006

Plaintiffs Alleging Discrimination May Sue Employer's Insurance Carriers to Resolve Coverage Issue

A class of plaintiffs sued their employer, Friedman's, alleging it had discriminated against them because of their race. Friedman's has employment practices liability insurance (EPLI) through Federal Insurance Company and St. Paul Mercury Insurance Company. In the early stages of the litigation the parties reach a settlement conditioned on Friedman's obtaining funding from its insurers. The insurance companies, however, deny that Friedman's EPLI policies cover the plaintiffs' claims.

Before Friedman's could resolve the coverage dispute, it filed for bankruptcy. Court rulings in the bankruptcy preclude monetary relief against Friedman's but permit monetary relief against its insurers.

The discrimination plaintiffs respond by asking for leave to amend their original complaint to add claims against Federal Insurance Company and St. Paul Mercury Insurance Company. Friedman's argues that the plaintiffs do not have standing to sue the insurance companies.

Seeing the original settlement slipping away, the District Court of Maryland permits the plaintiffs to sue the insurance companies. According to the Court:

"The fact that Federal and St. Paul remain the only means by which Plaintiffs may recover under their claim, coupled with the fact that the coverage dispute remains a significant obstacle to a settlement agreement, presents the Court with a genuine controversy regarding the legal rights and responsibilities of Plaintiffs and Friedman's EPLI insurers."

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