Insurance – Part 3

Church Law and Tax 1989-11-01 Recent Developments Insurance Richard R. Hammar, J.D., LL.M., CPA •

Church Law and Tax 1989-11-01 Recent Developments


A federal district court in Minnesota resolved a dispute between a church-operated school and its liability insurance company regarding payment of a claim. The school had purchased a policy insuring against wrongful acts of its employees. While the insurance was in force, a female employee notified the school principal that she intended to resign. The principal informed her that her husband (who also was an employee of the school) would be fired if she quit. Soon after this conversation, the wife resigned and the husband was fired. The husband filed a “marital discrimination” claim against the school under a Minnesota human rights law, and the school eventually settled the claim with the husband for $15,000. The insurance company refused to reimburse the school for the amount of the settlement on the grounds that (1) the settlement did not constitute an insurable loss under the policy, (2) the school should not able to insure itself against unlawful actions by its employees, and (3) employers should not be permitted to “shift” their labor costs onto their insurers. The court rejected all of these claims. It concluded that the school’s settlement of the discrimination claim was a “loss” under the insurance policy since it was a liability resulting from an employee’s wrongful act. It further noted that insurance company had “failed to show that unlawful acts relating to termination of employment are uninsurable.” Convent of the Visitation School v. Continental Casualty Co., 707 F. Supp. 412 (D. Minn. 1989).

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