Court rules sexual harassment excluded from D&O coverage, sides with AIG
Court rules sexual harassment excluded from D&O coverage, sides with AIG | Insurance Business Canada
Legal Insights
Court rules sexual harassment excluded from D&O coverage, sides with AIG
Decision exempts the carrier from covering legal defence costs
Legal Insights
By
Kenneth Araullo
The Court of King’s Bench of New Brunswick has ruled that sexual harassment falls under the exclusion for “sexual misconduct” in a directors and officers (D&O) insurance policy, even if the term is not explicitly defined in the policy.
This decision exempts AIG Insurance from covering Crandall University’s legal defence costs in a wrongful termination lawsuit filed by a former professor.
The university had argued that the exclusion did not apply because the policy’s definition of sexual misconduct did not specifically include “sexual harassment.” However, the court concluded that the term “sexual misconduct” encompassed a wide range of behaviours, including sexual harassment, as part of immoral or sexual behaviour.
The policy, issued by AIG, defines sexual misconduct as “any licentious, immoral or sexual behaviour, sexual abuse, sexual assault, or molestation intended to lead to or culminating in any sexual act against individual(s).”
In its ruling, the court noted that while the policy did not specifically define “sexual harassment,” it referenced a 1989 Supreme Court of Canada case that described sexual harassment as “unwelcome conduct of a sexual nature that detrimentally affects the work environment or leads to adverse job-related consequences for the victims.”
Based on this interpretation, the court found that the exclusion for sexual misconduct was applicable and that Crandall University’s suggestion to explicitly include sexual harassment in the definition was unnecessary.
The court’s decision means that AIG is not required to provide coverage for the university’s legal expenses in the ongoing lawsuit, which alleges wrongful termination and other claims.
Crandall University sexual harassment case
The dispute stems from an insurance policy Crandall University purchased from AIG Insurance Company of Canada. The conflict arose after an internal investigation, prompted by anonymous allegations on a social media account, led to the dismissal of a professor, Dr Stackhouse, for alleged sexual harassment of a student.
Dr Stackhouse and his partner, Ms. Britton, subsequently filed a civil lawsuit against the university, claiming wrongful termination, defamation, and other issues.
Crandall University sought a declaration that AIG must indemnify the institution for losses, including defence costs, related to the lawsuit. The university also sought to use its own counsel for the defence. However, AIG contended that the exclusion for sexual misconduct in the policy precluded coverage for the lawsuit’s claims.
The court agreed with AIG’s interpretation, stating that the claims in the lawsuit arose indirectly from sexual misconduct, as defined by the policy. As a result, the court dismissed the application and ordered Crandall University to pay AIG $3,000 in costs, plus additional disbursements.
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