Magazine article Risk Management
Punitive Damages for Employment Discrimination
This June, the U.S. Supreme Court rendered an important decision in the area of employment discrimination law in the case of Kolstad v. American Dental Association. Although not an insurance coverage dispute, Kolstad is significant to employment practices liability insurers and others who may be asked to consider coverage for Title VII punitive damage awards.
The case involved a gender discrimination suit brought under Title VII of the Civil Rights Act of 1964. Carole Kolstad had sued for both compensatory and punitive damages, which have been available under Title VII since the passage of the Civil Rights Act of 1991. The pertinent statutory provision requires that an aggrieved employee demonstrate that an employer has engaged in intentional discrimination and has done so "with malice or with reckless indifference to (the employee's) federally protected rights."
Under Title VII, damages can only be awarded in cases of intentional discrimination. The Court held that there need be no showing of egregious misconduct other than the employer having a "state of mind" evidencing malice or reckless indifference. It cited examples, however, of where there might be intentional discrimination, but not the requisite state of mind to support a punitive award. These include situations where the employer was unaware of the discrimination law or where the theory of discrimination is "novel" or "poorly recognized."
As long as malice or reckless indifference can be shown, though, conduct may be imputed to the employer for purposes of a punitive award. Kolstad makes clear that no independent egregious misconduct on the part of the employer itself need be established, making it easier for plaintiffs to obtain an award.
The Court did express concern that employers diligently educating their workforce on the illegal nature of discrimination and the need to avoid it may unwittingly leave themselves exposed to liability for punitive damages without the defense that they were unaware of the illegality of the conduct. To remedy this, it was held that an "employer may not be vicariously liable for the discriminatory employment decisions of managerial agents where these decisions are contrary to the employer's good faith efforts to comply with Title VII. …