Claims-Made Policy Bars Employment Discrimination Suit Amid Bankruptcy
Two years into a discrimination suit by an employee against his former employer, the employer filed for Chapter 11 bankruptcy which stayed the litigation. The employee did not file a proof of claim in bankruptcy. The district court lifted the stay and subsequently granted partial summary judgment for the employer. Unbeknownst to the court, the bankruptcy proceedings had concluded years earlier when the company’s reorganization plan was confirmed discharging all claims against the employer and permanently enjoining their prosecution. The employee still sought to prosecute his case and the court responded by vacating its prior ruling on summary judgment and dismissing the complaint. On appeal, the employee claimed error because the court prevented him from seeking recovery from the insurance policy issued to the employer. Applying Pennsylvania law, the Third Circuit rejected this argument finding the insurer had no duty to cover the employer under the policy because it was a “claims- made” policy and the insured did not notify its carrier of the claim. The court also noted the company’s significant self-insured retention that would have likely made any award recoverable only against the insured and the discharge in bankruptcy barred such a recovery.