When must an insurance company provide coverage in an ADA failure-to-accommodate case?

This case involves a dispute between an insurance company and a private entity that was sued for violating the Americans with Disabilities Act. The insurance company would not cover the defense costs, claiming the policy does not protect against intentional acts. This state-law issue is sufficiently complex that the Second Circuit (Pooler, Lynch and Park) is certifying it for review by the New York State Court of Appeals.

The case is Brooklyn Center for Psychotherapy v. Philadelphia Indemnity Insurance Company, decided on April 9. Normally, we recognize that intentional acts are not covered by insurance, only negligent acts, like slip and falls and malpractice. At least, that's the common understanding. In this case, the Brooklyn Center was sued by a hearing-impaired woman who claimed the Center declined to provide psychiatric treatment for her son because the woman needed sign language and other accommodations for her disability. The district court dismissed the case, holding that the insurance policy did not cover acts like this, only negligent acts.

Under state law, an insurer's duty to defend is "exceedingly broad." After all, why else would someone pay their premiums? But insurance policies are also carefully worded. In this case, it said the insurance company would only provide coverage for an "occurrence," defined as an "accident." This is a standard provision in many insurance policies. Under New York law, "damages that are not intended by an insured are considered 'accidental,' and an act causing such unintended damages is considered an 'occurrence.'" But that does not mean that coverage is barred whenever an insured performs an intentional act that ultimately causes damage. "Though an intentional act may ultimately cause certain damages, those damages may, under New York law, be considered 'accidental' if the total situation could be found to constitute an 'accident.'" This may happen when the insured did not expect or intend the harm that was caused.

How does this affect discrimination cases? Did the Brooklyn Center's failure to accommodate the woman's disability constitute an "accident" under the policy? Allegations involving solely disparate treatment are not covered under these insurance policies. But at least one New York court holds that an insurer must defend an insured against disparate impact litigation, where the plaintiff does not have to prove intent to discriminate. There is no guidance in any state court or administrative rulings on whether insurance companies must provide coverage in failure-to-accommodate cases under the ADA. One argument in favor of coverage is that these kinds of cases do not always involve an intent to discriminate. It's a tricky situation. And when the Second Circuit is confronted with a tricky state-law situation for which there is little guidance from the state courts, it certifies the issue to the New York Court of Appeals for a definitive ruling under state law. And that's where this case is going.