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FISHER v. ST. PAUL INSURANCE COMPANY

April 15, 2003

LAWRENCE FISHER, TRUSTEE OF THE ESTATE OF FISHMAN, MERRICK, GENNELLY, SPRINGER, KLIMEK, & ANDERSON, P.C., PLAINTIFF-APPELLANT,
v.
ST. PAUL INSURANCE COMPANY OF ILLINOIS, DEFENDANT-APPELLEE.



The opinion of the court was delivered by: John W. Darrah, United States District Judge

MEMORANDUM OPINION AND ORDER

This matter comes before the Court on the appeal of the judgment of the bankruptcy court on November 26, 2002, by Lawrence Fisher, the Trustee of the Estate of Fishman, Merrick, Gennelly, Springer, Klimek & Anderson, P.C. For the reasons that follow, the decision of the bankruptcy court is affirmed.

BACKGROUND

The Estate of Fishman, Merrick, Gennelly, Springer, Klimek & Anderson, P.C. ("F&M") was an Illinois professional corporation. Gerald Fishman ("Fishman") was a partner at F&M. The Defendant, St. Paul Insurance Company of Illinois ("St. Paul"), is an insurance company which is authorized to do business in Illinois. St. Paul was the issuer of workers compensation policies ("the policies") to F&M.

On February 10, 1999, an involuntary petition for relief was filed under Chapter 7 of Title 11 of the United States Code against F&M. An order for bankruptcy relief was issued on July 9, 1999; and Lawrence Fisher ("Trustee") was elected trustee.

On October 5, 2001, the Trustee filed an adversary proceeding against St. Paul, alleging that St. Paul breached its contractual obligations pursuant to the policies by refusing to defend or indemnify F&M in connection with an administrative claim and subsequent federal lawsuit by a former F&M employee, Roxanne Rochester ("Rochester"), against F&M and Fishman ("the Rochester Action").

The Rochester Action

Rochester filed two charges of discrimination ("the charges") with the Illinois Human Rights Commission and the Equal Employment Opportunity Commission ("EEOC") against Fishman and F&M. The charges alleged that Rochester had been employed as an associate attorney from November 13, 1989 until February 9, 1994, when she was constructively discharged. The charges alleged that during her employment, Rochester had been discriminated against because of her sex and retaliated against for refusing Fishman's unwanted sexual advances and for reporting the sexual harassment.

After receiving a Right to Sue letter, Rochester filed a five-count complaint against Fishman and F&M in the United States District Court for the Northern District of Illinois, alleging quid pro quo sexual harassment (Count I), hostile working environment sexual harassment (Count II), sex discrimination (Count III), intentional infliction of emotional distress (Count IV), and tortious interference with contractual relationship (Count V). In the complaint, Rochester alleged that during her employment at F&M. Fishman, with F&M's knowledge, consent and approval, deliberately, maliciously and repeatedly sexually harassed her. She further alleged that F&M and Fishman discriminated against her because of and due to her gender.

Rochester alleged that, beginning in late October or early November 1990 and continuing until July 8, 1991, Fishman made repeated sexual innuendos and advances to Rochester. Specifically, Rochester alleged that Fishman (1) flirted with her; (2) kissed her against her will on more than one occasion; (3) fondled her breast on more than one occasion; (4) masturbated in front of her; (5) put his hand up her skirt; and (6) on July 5, 1991, held her down and forcibly stuck his finger in her vagina. The complaint also alleges that during this time, Rochester repeatedly advised Fishman that his conduct was unacceptable and had to stop and brought Fishman's conduct to the attention of other F&M partners. However, F&M took no steps to curb Fishman's conduct.

The complaint further alleges that after the July 5, 1991 episode, Rochester complained about Fishman's conduct to an attorney at F&M, Scott Porterfield, on two occasions. The complaint alleges that after these complaints and until Rochester's termination, (1) the partners only spoke to her on work-related matters; (2) Fishman and partners closely associated with him did not work with Rochester again, cutting off her professional growth; (3) F&M withheld secretarial, clerk and paralegal services, did not allow her to incur ordinary and customary expenses, and denied her resources that it made available to male associates.

After Rochester filed the charge and the complaint, F&M submitted a claim to St. Paul for coverage. St. Paul denied coverage, stating that (1) the claim was not covered by the policies and (2) even if it was, the employer's liability exclusion applied.

The case went to trial; and a jury verdict was entered against F&M, finding it liable for quid pro quo sexual harassment, hostile working environment sexual harassment and unlawful retaliation. The jury awarded Rochester compensatory and punitive damages.

The Policies

St. Paul issued the policies to F&M. The policies were in effect for two annual periods, beginning January 1, 1990 until January 1, 1992. The policies provided that: "You are insured if you are an employer named in item 1 of the Information Page. If that employer is a partnership, and if you are one of its partners, you are insured, but only in your capacity as an employer of the partnership's employees." (Adversary Compl. Ex. A1, Workers Compensation & Employers Liability Insurance Policy ¶ B.)

The policies also provided that they applied to "bodily injury" by accident or disease subject to certain exclusions. Under the policies, St. Paul had the right and duty to defend at its expense any claim or proceeding or suit brought against F&M for benefits payable by the policies. However, the policies excluded coverage for, among other things, "5. bodily injury intentionally caused or aggravated by" the insured ("Exclusion 5") and "7. damages arising out of the discharge of, coercion of, or discrimination against any employee in violation of law". (Id. at Pt. 2. § C, ¶¶ 5, 7.) Pursuant to an endorsement, "Part Two (Employers Liability Insurance), C. Exclusion is amended by replacing exclusion 7 with this exclusion. This insurance does not cover: 7. damages arising out of coercion, criticism, demotion, evaluation, reassignment, discipline, defamation, harassment, humiliation, ...


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