New Jersey Court Holds No Coverage for Sexual Harassment Claim Under E&O Policy

In its recent decision in Aaron Ambulance Med. Transp., Inc. v. Certain Underwriters at Lloyd’s, 2017 U.S. Dist. LEXIS 149409 (D.N.J. Sept. 14, 2017), the United States District Court for the District of New Jersey had occasion to consider the scope of coverage afforded under a professional liability policy for allegations of sexual harassment against an employee.

Underwriters issued to Aaron Ambulance a professional liability policy insuring its ambulance-related services.  The policy’s main form contained an exclusion for sexual misconduct, sexual abuse and/or child abuse.  It also contained exclusions for claims brought by one insured (defined to include employees) against another and for unlawful discrimination.  Aaron Ambulance purchased an extension of coverage to the policy, set forth in an endorsement, affording coverage for claims arising out of sexual misconduct, sexual abuse, and/or child abuse.  This extension of coverage was subject to a separate sublimit of coverage and the express condition that the endorsement did not change any other terms or conditions of the policy.

Aaron Ambulance sought coverage under the policy for a suit brought against it by an individual alleging that she was subject to hostile sexual harassment and abuse during the time of her employment with Aaron Ambulance.  Underwriters took the position that the extension of coverage for sexual misconduct only extended to sexual misconduct committed in the context of rendering professional services and that the policy did not insure workplace-related claims.  Aaron Ambulance countered that the extension of coverage for sexual misconduct claims was not limited to claims asserted by patients, and that at the very least, it had a reasonable expectation that the extension of coverage would include employment-related sexual harassment claims.

Siding with Underwriters, the court agreed that the plain reading of the endorsement in conjunction with the various exclusions in the policy made clear that the endorsement did not negate the exclusions for allegations of unlawful discrimination or for claims brought by insureds, a term defined to include employees.  In so concluding, the court accepted Underwriters’ argument that the policy only provides professional liability as opposed to employment practices liability insurance.  As the court explained:

Absent express reference to other provisions of the Policy, the Court is disinclined to construe the Policy as expansively as Plaintiffs suggest. It would be a generous interpretation indeed to read Endorsement 7 to expand coverage beyond professional services and into the realm of sexual harassment and discrimination—all without using or defining such terms or referring to related definitions, declarations, or exclusions. A plain reading, rather, recognizes that the Policy says what it means through well-defined and consistently-employed terms. Such a reading also supports the conclusion that, as Defendant persuasively argues, sexual misconduct is insured against not in the sense of sexual harassment or in the context of an office environment, but simply in rendering professional ambulatory services—a situation not raised by the allegations of the underlying complaint. Without further guidance from the express terms of the Policy, therefore, there is no reasonable basis to find ambiguity or an expectation of coverage.