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The Talbots, Inc. v. AIG Specialty Insurance Co.

United States District Court, D. Massachusetts

September 29, 2017

THE TALBOTS, INC.
v.
AIG SPECIALTY INSURANCE COMPANY

          MEMORANDUM AND ON DEFENDANT'S MOTION TO DISMISS

          RICHARD G. STEARNS, UNITED STATES DISTRICT JUDGE.

         This insurance dispute arises from a California state court lawsuit brought against The Talbots, Inc. (Talbots) by two former Talbots employees, individually and on behalf of a proposed class of employees, alleging various violations of the California Labor Code (the Lopez Action).[1] Talbots sought defense costs and indemnification for the Lopez Action from its insurer, defendant AIG Specialty Insurance Company (AIG), which in turn denied coverage under the terms of Talbots' policy. Talbots responded by bringing suit in this court, alleging breach of contract (Count I) and breach of the implied covenant of good faith and fair dealing (Count II).[2] AIG now moves to dismiss the Complaint, arguing that the claims brought against Talbots in the Lopez Action fall within various exclusions to the AIG Policy. The court agrees and will grant the motion.

         BACKGROUND[3]

         Talbots is a specialty retailer and marketer of women's apparel, accessories, and shoes. In October of 2014, Talbots' parent company, Tailor Holdings, LLC (Tailor), purchased a Management Liability for Private Companies policy from AIG (the Policy). The Policy, which applied to Tailor's subsidiaries (among them Talbots[4]), included three separate coverage sections: 1) the Directors and Officers Liability Coverage Section (the D&O Coverage Section); 2) the Employment Practices Liability Coverage Section (the EPL Coverage Section); and 3) the Fiduciary Liability Coverage Section. The parties agree that only the first two coverage sections are implicated in the current dispute. The Policy, in effect from October 1, 2014, to October 1, 2015, was issued in Massachusetts.[5]

         A. Policy Exclusions

         Both the D&O Coverage Section and the EPL Coverage Section require AIG to advance defense costs and pay losses incurred by an insured arising from claims against the insured, subject to the exclusions and exceptions that are at issue in this case. Exclusion 4(q) of the D&O Coverage Section provides that AIG is not liable for “Loss in connection with any Claim made against an Insured . . . alleging, arising out of, based upon, or attributable to the employment of any individual or any employment practice, including, but not limited to, wrongful dismissal, discharge or termination, discrimination, retaliation or other employment-related claim.” This provision sweeps broadly: any claim against the insured “arising out of, based upon, or attributable to” the insured's employment practices is excluded from coverage under the relevant section.

         Although categorically excluded from the D&O Coverage Section, loss and claims against the insured stemming from employment-related practices are covered under the EPL Coverage Section. Section 2(b) covers only enumerated species of actual or alleged Employment Practices Violations:

(i) wrongful dismissal, discharge or termination (either actual or constructive) of employment, including breach of an implied contract;
(ii) harassment (including, but not limited to, sexual harassment whether “quid pro quo”, hostile work environment or other harassment in the workplace);
(iii) discrimination (including, but not limited to, discrimination based upon age, gender, race, color, national origin, religion, sexual orientation or preference, pregnancy or disability);
(iv) retaliation (including, but not limited to, lockouts);
(v) employment-related misrepresentations to an Employee of the Company or applicant for employment with the Company or an Outside Entity;
(vi) employment-related libel, slander, humiliation, defamation or ...

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