Legal Review Committee Agenda and Packet 2014 08 20

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City of Louisville City Council Legal Review Committee August 15, 2014 Page 2 of 4 2. Liability Under Federal Law: There is not a counterpart federal immunity statute that extends broad immunity to local government officials similar to the Act. However, local officials enjoy qualified immunity as a defense to liability claims, as well as other protections under federal law. Rather than tort -type claims typically brought under state law - e.g., defamation, invasion of privacy, interference with contract— federal liability claims against municipalities and /or their officials and employees tend largely to be either discrimination claims or civil rights claims brought under 42 U.S.C. Section 1983. A description of typical public entity "wrongful acts" coverage explains how officials and employees are protected against these claims. Under the City's current PEML policy, the insurer commits to pay those sums the insured is legally obligated to pay as damages because of a loss to which the coverage applies. This is the duty to indemnify. The insurer also has the right and duty to defend the insured against any claim or suit seeking those damages. This is the duty to defend, which under Colorado law is broader than the duty to indemnify. See, e,., Hecla Mining Co. v. New Hampshire Ins. Co., 811 P.2d 1083 (Colo. 1991) ( "[a]n insurer's duty to defend arises when the underlying complaint against the insured alleges any facts that might fall within the coverage of the policy. ") The PEML coverage then further states the insurance applies where the loss is caused by "a `wrongful act' committed while conducting duties by or on behalf of you or `your board, "' subject to the conditions and exclusion of the policy. For purposes of triggering coverage, a "wrongful act" is defined as the types of conduct for which protection from claims is desired, such as discrimination, retaliation, harassment and other bases of claims. Other parts of the coverage form respond similarly to claims under federal statutes affording protection of civil rights. 3. Insurance Coverage in Cases of Alleged Misconduct: In light of these principles, defense and coverage questions arise when there are allegations of intentionally wrongful acts, or conduct "outside the course and scope." In these cases, where the type of claim otherwise triggers coverage (e.g., a discrimination claim), a common practice is for the insurer to agree to defend the official or employee, subject to a reservation of its rights to deny coverage or indemnity if an exclusion applies. This protects the insurer from bad faith claims for breach of its duty to defend —which as noted above is broad —while at the same time preserving the insurer's right to discontinue defense or refuse to pay a judgment if the facts show an exclusion applies. However, it can be unsettling to be defended under a "reservation of rights" and the question left can be, "When will I know for sure whether I'm covered or not ?" For insurance purposes, a typical approach to the timing of this determination is set forth in the PEML "intentional acts" exclusion of the City's coverage form. It states this exclusion does not apply to the insurer's duty to defend "until it has been determined or admitted in a legal proceeding that [the] `wrongful act' was committed (1) by that insured; or (2) with the knowledge and consent of that insured." Thus, if a case proceeds to judgment and the determination is that the insured did not knowingly commit the wrongful act —i.e., perhaps there was negligence, or even gross negligence, but the defendant did not consciously or intentionally engage in bad acts —the Light I Kelly, P.C. 101 University Boulevard, Suite 210, Denver, CO 80206