HNRK Coverage Corner

On April 9, 2020, the Second Circuit issued a decision in Brooklyn Center of Psychotherapy, Inc. v. Philadelphia Indemnity Ins. Co., Docket No. 19-2266-cv, certifying the following question to the New York Court of Appeals:  Can a discrimination claim based on a “failure to accommodate” theory trigger coverage under a general commercial liability policy?

The coverage dispute in this case arose from a disability discrimination lawsuit brought by a deaf woman, who alleged that the Brooklyn Center for Psychotherapy discriminated against her, in violation of state and federal statutes, by failing to make reasonable accommodations (such as providing interpreter services) to make the Center accessible to her.  Brooklyn Center sought defense coverage under its commercial general liability policy, which provided coverage for “bodily injury” resulting from an “occurrence,” which is defined as “an accident."  (Emotional distress can constitute a "bodily injury" for purposes of a CGL policy under New York law.) As discussed on this blog , intentional wrongdoing generally does not constitute a covered “occurrence."  However, there can be coverage for the unintended consequences of intentional acts, even if the resulting injuries might have been foreseeable.  See, for example, our previous post, on the Second Circuit's decision in Philadelphia Indemnity Ins. Co. v. Central Terminal Restoration Corp. Case No. 17‐1636‐cv (holding that a car accident caused by a driver to whom the insured had served alcohol when he was visibly intoxicated, in violation of New York’s dram shop law, was a covered occurrence; "CGL policies cover injuries where an accident at issue is the unintended result of an intentional act," such a selling alcohol to a drunk customer).  An injury is deemed “intentionally caused” if the “damages . . . flow directly and immediately from an intended act” rather than “a chain of unintended though expected or foreseeable events that occurred after an intentional act.” Brooklyn Law Sch. v. Aetna Cas. & Surety Co., 849 F.2d 788, 789 (2d Cir. 1989). The insurer (PIIC) denied Brooklyn Center’s claim for defense coverage, arguing that the “failure to accommodate” claim was not a covered occurrence under this standard, and Brooklyn Center filed a coverage action.  The district court granted PIIC’s motion to dismiss. 

On appeal, the Second Circuit found that the issue of coverage for a “failure to accommodate” discrimination claim was unresolved under New York law and certified the question to the New York Court of Appeals, explaining:

As an initial matter, New York courts have clearly held that the “occurrence” language in the Policy does not require insurers to defend suits alleging solely disparate-treatment discrimination.  Similarly, the New York Superintendent has explained that “discrimination based upon disparate treatment is an intentional wrong whose resultant harm flows directly from the acts committed, and liability coverage for it is impermissible” as a matter of New York public policy.

On the other hand, at least one New York court has held that the Policy language does require—and New York public policy allows—an insurer to defend an insured against a disparate-impact discrimination suit.  And the Superintendent has explained that in disparate-impact cases, “the discriminatory result does not directly proceed from specific discriminatory acts against individuals; in fact, such acts are not an element of the wrong and need play no part in the facts alleged.”

Neither New York courts nor the Superintendent, however, have provided guidance on failure-to-accommodate claims. Here, Brooklyn Center argues that failure-to-accommodate claims are more like disparate-impact claims than disparate-treatment claims because plaintiffs need not prove discriminatory intent to succeed on failure-to-accommodate claims. Indeed, the decision to refuse a particular accommodation may be justified, and will not provide a basis for liability, if the requested accommodation is unreasonable or “would impose an undue hardship on the operation of the business.”  Thus, as long as Brooklyn Center believed that hiring interpreters to accommodate Goldman’s hearing disability would have been unreasonable or would have imposed an undue hardship on its business, any cognizable harm resulting from its refusal to do so would have been accidental. This position finds support in New York case law. In response, PIIC focuses on Brooklyn Center’s refusal to accommodate Goldman’s disability, irrespective of its reasons for doing so. Brooklyn Center’s refusal to hire interpreters, PIIC argues, was an intentional act that “directly and immediately” caused damage to Goldman.  This position also finds support in New York case law.

Thus, it is not clear under New York law whether a failure to accommodate a disability can be an “occurrence” for purposes of coverage under the Policy.

This will be the second case on the Court of Appeals’ docket this year concerning the scope of coverage under a CGL policy. The Court recently granted leave to appeal in a case concerning the availability of CGL coverage for a disgorgement payment made by a brokerage firm under a settlement with the SEC.