The Second Circuit’s ruling in Westrec Marina Management v. Arrowood Indemnity Co. is a warning to employers to report potential claims to their insurance carrier as soon as possible or face denial of coverage. In Westrec, an employee filed a charge of discrimination against Westrec with the California Department of Fair Employment and Housing (DFEH) and requested an immediate right to sue letter. Subsequently, her attorney sent a demand letter to Westrec asserting claims and seeking possible early settlement prior to filing a lawsuit. At the time of the letter, Westrec failed to inform its insurer, Arrowood, of the claim. The employee later filed a civil action, and when Westrec tendered the claim, Arrowood denied coverage.
Arrowood argued that both the DFEH charge and the demand letter were "claims" under its policy, and Westrec’s failure to tender them voided coverage for the later lawsuit. Westrec argued that neither the DFEH charge nor the attorney’s letter were "claims" and it had no responsibility to tender under the policy until the lawsuit was filed. The court sided with Arrowood. It held that the attorney’s letter was a "claim" because it clearly expressed the intent to sue Westrec if a settlement was not reached. The court did not expressly hold that the mere filing of a DFEH charge or receipt of a right to sue letter were a "claim" triggering the obligation to tender. However, it did note that "[o]btaining a right to sue notice is a necessary predicate to the filing of an action under the California Fair Employment and Housing Act." Therefore, Westrec should have tendered the claim immediately upon receipt of the right to sue notice. The case serves as a stark reminder to employers that they should notify their insurer of any claim or potential claim as soon as possible to avoid losing coverage.