Car Dealership Responsible for Unfair Termination Case, Not Its Insurer

After a car dealership employee was fired, the dealership and its employment practice liability insurer argued in court who would be responsible for the wrongful termination claim.
By: | August 7, 2019

Stadium Motorcars, LLC and Central Houston Motorcars, LLC (Stadium and Central) own and operate car dealerships out of Houston. They hired Chris Singleton to manage a collision center in 2016.

In this role, Singleton allegedly discovered that Stadium and Central were fraudulently billing auto insurers. He promptly reported this to his supervisor.

He was promptly fired.

Singleton contended he was fired in retaliation to the claims he made. He sued the two entities for breach of contract and wrongful termination.

Stadium and Central held an employment practices liability policy through Federal Insurance. When the Singleton lawsuit came in, Stadium and Central reported it to Federal. Federal responded that the lawsuit appeared to present a covered claim and exercised its right to provide counsel and defense.

But Stadium and Central opted for its own defense counsel, so Federal issued a reservation-of-rights.

It reserved the right to decline coverage if Stadium and Central failed to communicate and cooperate with Federal throughout the process.

In March 2017, Singleton voluntarily dropped his lawsuit. Stadium and Central notified Federal.

Then, in April 2017, Singleton filed an arbitration claim against Stadium and Central. This time, the dealerships failed to notify Federal.

In 2018, the arbitrator ruled in favor of Singleton and awarded him $334,992 in damages. When Stadium and Central turned to Federal for coverage, however, the insurer denied the claim based on Stadium and Central’s failure to give timely notice. Stadium and Central sued Federal.

In court, Federal argued Stadium and Central did not give timely notice, nor did it communicate with the insurer all the updates of the underlying suit.

Stadium and Central countered that Federal waived its right to receive notice when it issued its reservation-of-rights letter in the first place.

Stadium and Central believed that the original Singleton lawsuit and the Singleton arbitration should be considered one claim, or, at the very least, related claims.

Scorecard: The court sided with Federal Insurance’s interpretation of the policy, including its stance on the definition of claim versus related claims.

Takeaway: When faced with a legal matter of any kind, insureds should be reporting all updates — even the seemingly small ones — to their insurers in order to create an open line of communication. &

Autumn Demberger is the content strategist at Risk & Insurance®. She can be reached at [email protected].

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