THE WORKPLACE and the employment environment generate four separate but interrelated sets of issues:
* Liability issues in wrongful termination and sexual harassment lawsuits.
* Coverage issues regarding wrongful termination and sexual harassment lawsuits under general liability insurance policies.
* Coverage issues regarding wrongful termination and sexual harassment lawsuits under workers' compensation and employers' liability policies.
* Coverage issues regarding wrongful termination and sexual harassment lawsuits under directors and officers liability policies.
Lawsuits against insured employers often involve former employees who have quit or have been fired. They file lawsuits against former employers, and sometimes against employees, partners, directors, officers, co-workers and supervisors, alleging wrongful or constructive termination in breach of an employment contract. Most of these lawsuits also include causes of action for some type of violation of public policy, such as sexual harassment or racial discrimination, retaliation based on the employee's whistle-blowing or union activities, or discrimination based on the employee's health or physical disability. In some cases, plaintiffs also include a cause of action for defamation based on a derogatory statement by a supervisor or co-worker.
In some situations, former employees also allege that they were forced to quit or were fired because of an unfair condition inherent in the employment, such as excessive stress, unreasonable working hours, cramped working conditions, or an unfair demotion or reprimand. The underlying complaints typically contain causes of action for breach of the employment contract, breach of the covenant of good faith and fair dealing, negligent and intentional infliction of emotional distress, discrimination, harassment and/or retaliation. There usually will be claims for damages for emotional distress, loss of salary and other employment benefits, plus punitive damages.
Insured employers will tender the defense and indemnity of these lawsuits to their general liability insurers, sometimes to their D&O insurers, and recently in California to their workers' compensation carriers.
During the last few years, appellate decisions, both in state and federal courts, have greatly narrowed the scope of liability coverage afforded for these types of lawsuits. Court decisions have focused on different issues tied to the language usually contained in general liability policies. The law now is favorable to general liability insurers. At least in California, a liability insurer's decision to deny both a defense and indemnity to an insured employer sued for wrongful termination and discrimination is well founded. The decisions that have been issued on wrongful termination show a trend to force these types of cases out of civil court and into the workers' compensation arena.
TORT LIABILITY ISSUES
A. Wrongful Termination
Tort damages, such as those for emotional distress, generally are not available to a plaintiff alleging wrongful discharge or breach of the covenant of good faith or fair dealing, unless the termination contravenes a fundamental public policy.(1) The violation of public policy must affect a duty that inures to the public at large, rather than merely affecting the righs of a particular employee,(2) and the public policy must be fundamental, substantial and well established at the time of the discharge.
The status of the law in California is that, unless an employee alleges a breach of public policy, an employee who is fired can claim only breach of contract damages, not tort damages in the form of emotional distress. Thus, wrongful termination claims often appear in tandem with alleged violations of federal and state anti-discrimination statutes. Federal satautes include Title VII of the Civil Rights Action of 1964, 42 U.S.C. [sections][sections] 2000e et seq. …