OPINION OF THE COURT
Plаintiff, American Management Association (AMA), moves for a judgment, pursuant to CPLR 3212, declaring that defendant Atlantic Mutual Insurance Company (Atlantic Mutual) is obligated to defend and indemnify it in an underlying age discrimination action, Clancey v American Mgt. Assn. (US Dist Ct, SD NY, Nov. 21, 1990, 90 Civ 7570 [the Clancey action]). Defendant, Atlantic Mutual, cross-moves for a judgment declaring that it is not required to defend and indemnify plaintiff, and dismissing the action, with prejudice.
This is an аction, for a declaration as to the rights of the parties under a general liability and umbrella insurance policy (policy No. 288-00-78 92), covering the period from January 24, 1989 to January 24, 1990, issued by Atlantic Mutual to AMA. AMA seeks reimbursement from Atlantic Mutual for the defense and settlement costs associated with the Clancey action, which was brought by former employees of AMA on November 21, 1990.
It is undisputed that AMA purchased a general liability and an umbrella insurance policy from Atlantic Mutual. Under the general liability endorsement, Atlantic Mutual agreed to provide AMA with insurance coverage for "personal injury” and "property damage” to which the policy applies, "caused by an occurrence.” The endorsement also provided that Atlantic Mutual "shall have the right and duty to defend any suit against [AMA] seeking damages on account of such personal injury or property damage, even if any of the allegations of the suit are groundless, false or fraudulent, and may make such investigation and settlement of any claim or suit as it deems expedient”.
"Personal injury” is defined in the general liability endorsеment to include "bodily injury”. "Bodily injury” is defined as follows: "Bodily injury, sickness or disease sustained by any person which occurs during the policy period”. An "occurrence” is defined as "an accident, including continuous or repeated exposure to conditions, which results in personal injury or property damage neither expected nor intended from . the standpoint оf the insured.”
"With respect to any occurrence not covered by the insurance specified in the Umbrella Declarations or any other underlying insurance collectible by [AMA], but covered by the terms and conditions of this insurance except for the amount of retained limit specified in Item (2) of Insuring Agreement D, the Company shall:
"1) defend any suit brought against [AMA] alleging such injury or destruction and seeking damages on account thereof, even if such suit is groundless, false or fraudulent; but [Atlantic Mutual] may make such investigation, negotiation and settlement of any claim or suit as it deems expedient”.
"Personal injury” wаs defined in the umbrella endorsement to include "bodily injury, sickness, disease, disability, shock, mental anguish and mental injury * * * resulting therefrom”; as well as "racial, religious, sex or age discrimination (unless insurance thereof is prohibited by law) not committed by or at the direction of [AMA], but only with respect to the liability other than fines and penalties imposed by law which occurs during the poliсy period.” (Emphasis added.) An "occurrence” was defined to mean "an accident, or happening or event, or a continuous or repeated exposure to conditions, which unexpectedly or unintentionally results in personal injury, property damage.”
The umbrella policy contained a "drop down” clause obligating Atlantic Mutual to defend AMA in any suit covered by the umbrella policy, even if excluded from coverage under the primary policy.
On November 21, 1990, several former regional sales representatives of AMA commenced the Clancey action against AMA in the United States District Court for the Southern District of New York, asserting, inter alla, claims of age discrimination under the Age Discrimination in Employment Act (29 USC § 623 [a] [1]; § 626 [b] [ADEA]), regarding adverse changes in the terms and conditions of their employment, as
Specifically, the complaint in the Clancey action alleged, inter alla, that beginning in 1987, AMA engaged in a "systematic effort” to eliminate the plaintiffs’ jobs by engaging in "willful discrimination on the basis of age”, including, among other things, by creating oppressive work conditiоns, reducing the size of their sales territories, hiring younger sales people and diverting sales leads to the younger sales people; and that, as a result of AMA’s actions, said employees "have lost salary and benefits, including but not limited to, health care, pension benefits, profit sharing and regular increases in compensation,” and "have suffered emotional distress as a result of AMA’s harassment, the termination of their employment, and their inability to find comparable work.”
AMA denied the allegations and asserts that it did not discriminate against any of its employees on the basis of age. Among other defenses to the Clancey action, AMA contended that some of the employees were replaced by older employees and that the plaintiffs were independent contractors and not protected by the ADEA. AMA also argued that even if its actions had a discriminatory result they were not intended to discriminate.
On November 30, 1990, AMA notified Atlantic Mutual of the Clancey action. By letter, dated March 5,1991, Atlantic Mutual disclaimed coverage under the aforementioned general liability and umbrella endorsements, asserting that the Clancey сomplaint alleges intentional acts, not covered under its policy, and that the public policy of New York bars an insurance company from insuring against age discrimination suits.
AMA retained its own counsel to defend the Clancey action, which was ultimately settled for $1.2 million in December 1992. In addition, AMA asserts that it incurred approximately $575,000 in defense costs in connection with the Clancey action.
By letters, dated April 27, 1993 and November 22, 1993, Atlantic Mutual reaffirmed its earlier disclaimer of coverage. By letters dated June 27, 1994 and October 25, 1994, AMA again sought to have Atlantic Mutual reimburse it for its defense and settlement expenses in connection with the Clancey action. In those letters AMA forwarded factual information seeking to show that it was not guilty of intentional age discrimination, but at worst might be liable for disparate
AMA argues that it did not engage in intentional discrimination, and that the facts in the Clancey complaint, at best, establish a claim for "disparate impact” age discrimination, and unintentional acts for which the policy provided coverage. It so advised Atlantic Mutual in the letters and contacts between them.
It is well settled that "[W]here an insurance policy includes the insurer’s promise to defend the insured against specified claims as well as to indemnify for actual liability, the insurer’s duty to furnish a defense is broader than its obligation to indemnify * * * [t]he duty to defend arises whenever the аllegations in a complaint against the insured fall with the scope of risks undertaken by the insurer, regardless of how false or groundless these allegations might be” (see, Seaboard Sur. Co. v Gillette Co.,
Furthermore, "[t]he duty [to defend] is not contingent on the insurer’s ultimate duty to indemnify should the insured be found liable, nor is it material that the complaint against the insured asserts additional claims which fall outside the policy’s general coverage or within its exclusory provisions” (Seaboard Sur. Co. v Gillette Co., supra, at 310). Rather, the duty of the insurer to defend the insured rests on whether the complaint liberally construed alleges any facts or grounds which arguably fall within a risk covered by the policy. (Servidone Constr. Corp. v Security Ins. Co.,
An insurer will only be relieved of the duty to defend if it demonstrates that "the allegations of the complaint cast the pleading solely and entirely within the policy exclusions, and further, that the allegations, in toto, are subject to no other interpretation” (International Paper Co. v Continental Ins. Co.,
It is undisputed that Atlantic Mutual’s policy does not provide insurance coverage for intentional acts of discrimination. As noted, the general liability endorsement excludes from coverage occurrences resulting in personal injury or property damage that was "expected * * * or intended from the standpoint of the insured.” The umbrella endorsement expressly excludes coverage for occurrences which result in age discrimination thаt was "committed by or at the direction of the insured.”
However, AMA argues, in essence, that the allegations in the Clancey action include, "disparate impact” discrimination, which, it claims, is not excluded from coverage. In order to state a claim for discrimination under the disparate impact theory, the complaint must allege, at a minimum, that the employer utilizеd a facially neutral criterion which resulted in selecting applicants for hire or promotion in a significantly discriminatory pattern (see, Geller v Markham, 635 F2d 1027 [2d Cir 1980], cert denied
The law is unsettled as to whether disparate impact theory is applicable under the ADEA. The Supreme Court in Hazen Paper Co. v Biggins (
This court need not decide this issue of Federal law in order to make a determination in this action. It is clear that the Clancey claim alleged enough facts to make a prima facie claim for disparate impact discrimination. Therefore, there was a reasonable possibility that such claim would be recognized as valid, particularly since the Clancey action was pending within the Second Circuit. Additionally, the insurance policy provided for a defense against actions that are fraudulent, groundless or false. At most, Atlantic Mutual could argue that a disparate impact claim was groundless. Therefore, Atlantic Mutual had a duty to defend against the action which AMA claimed was groundless. Furthermore, Atlantic Mutual could have argued that, at most, the complaint alleged acts which amount to disparate impact treatment and that it is not protected by ADEA. In other words, the arguments being made here should have been made by Atlantic Mutual in the defense of the Clancey action. Accordingly, Atlantic Mutual had a duty to defend AMA in the Clancey action.
Atlantic Mutual argues that even if the allegation in the Clancey complaint are covered by the policy, it does not have a duty to defend or indemnify AMA as a matter of public policy. By opinion dated September 26, 1963, the State Superintendent of Insurance stated that acts of discrimination on the basis of race, creed, color or national origin "may not lawfully be written under the New York Insurance Law; is not authorized by Section 46 of the Insurance Law in any of its specific
Atlantic Mutual has submitted a copy of a letter dated December 3, 1990 from an attorney at the State of New York Insurance Department addressed to Atlantic Mutual. The letter states in relevant part: "The Department’s position regarding insurance against legal liability arising out of discrimination because of race, creed, color or national origin was first annunciated in Sеptember, 1963 by then Deputy Superintendent Alford, in an opinion after a public hearing. A copy of that opinion is enclosed. The Department has revisited this issue several times since then, most recently in 1989, and each time has reaffirmed the position that it is against public policy in this state to provide insurance coverage against legal liability arising out оf acts of discrimination, even where the act was unintentional or vicariously imposed, which may be the case for an employer. While the Alford opinion only addresses, race, creed, color or national origin, it is our opinion that any act of prohibited discrimination under either federal or state law can not be insured.” (Emphasis added.) Atlantic Mutual has not provided the court with a copy of its inquiry to the Insurance Department. The court also notes that this letter was apparently not publicly disseminated and does not have the same authority as an official opinion of the Insurance Department.
In any event, a subsequent circular letter from the Insurance Department dated May 31,1994 to all "Licensed Property/ Casualty Insurers and Insurance Producer Organizations” (circular letter No. 6 [1994]) concludes that insurance coverage for acts of discrimination, when based solely on either disparate impact or vicarious liability is not against public policy. The letter states in relevant part:
"The Property and Casualty Insurance Bureau, in conjunction with the Office of General Counsel, has conducted acomprehensive analysis concerning the permissibility of coverage for acts of discrimination under liability insurance policies. Based on this analysis, the Department has concluded that liability coverage for acts of discrimination, when based solely on either disparate imрact (as Opposed to disparate treatment) or vicarious liability, would not be against public policy and therefore should be permitted * * *
"In recent years, however, actions and recoveries under the various and evolving civil rights laws have increasingly been rooted in discrimination claims based upon disparate impact, rather than dispаrate treatment. In such 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. Rather, such results are normally grounded upon statistical or other numerical profiles that reflect disparities between or among groups sufficient to support a finding of discrimination * * *
"Moreover, the Insurance Department concludes that the strong public policy against discrimination of any kind is, in fact, furthered by permitting coverage of the kinds described. By bringing to employers’ attention practices that can potentially result in unlawful discrimination, insurers’ loss preventiоn programs and underwriting standards should discourage such practices. Any employer who does not diligently attempt to modify employment procedures accordingly may well be denied insurance coverage. When unlawful acts of discrimination occur nonetheless, coverage will help ensure just compensation for victims.”
Accordingly, New York’s public policy does not bar coverage for disparate impact age discrimination.
The court further notes that even if coverage were against public policy or AMA was found to have practiced disparate treatment age discrimination, Atlantic Mutual would still have a duty to defend. (See, Colon v Aetna Life & Cas. Ins. Co.,
Where an insurer wrongfully refuses to provide a defense tо its insured, the insurer must reimburse the insured for any reasonable sums paid in settlement. (Rosen & Sons v Security Mut. Ins. Co.,
Accordingly, plaintiff’s motion for summary judgment is granted to the extent that defendant Atlantic Mutual is declared to have been obligated to defend AMA in the Clancey action and must reimburse AMA for any reasonable sum paid in settlement. Defendant’s cross motion to dismiss is denied.