Claims Adjuster Best In The World Insurance Company Anywhere, USA. RE: INSURED: ABC Corporation CLAIMANT: Bob Smith DATE OF LOSS: June 1, 1998

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1 Claims Adjuster Best In The World Insurance Company Anywhere, USA RE: INSURED: ABC Corporation CLAIMANT: Bob Smith DATE OF LOSS: June 1, 1998 POLICY NO.: PERIOD: April 19, 1998 to April 19, 1999 CLAIM NO.: FILE NO.: xxxx Dear Sir/Madam: Thank you for forwarding this case to our office. I have reviewed the materials provided with respect to the above captioned matter, including the complaint filed in the King County District Court for the State of Washington, entitled Bob Smith v. ABC Corporation, Case No (the "complaint"), Commercial General Liability Coverage Form CG , Declarations and Endorsements, and various other claim file materials. Bob Smith ("claimant") has sued his former employer, ABC Corporation ("the insured") for discrimination arising out of the termination of claimant's employment with the insured. Claimant alleges that he sustained an on-the-job injury in October of Claimant alleges that he was told by his supervisor not to file a claim as a result of his injury, but that he proceeded to make a claim with the Department of Labor & Industries. The insured was allegedly aware of claimant's injuries, and was also aware that claimant needed to work light duty as a result. Claimant alleges that when he returned to work for the insured the insured did not supply him with light duty work as had been promised, but rather required him to work beyond his medical restrictions. Claimant once again requested light duty, but the request was denied. Claimant alleges that during this time period he was subjected to harassment and retaliation from the insured for having filed a claim with the Department of Labor & Industries, and for having sustained an injury requiring light duty. The insured allegedly provided light duty work to employees who were not in claimant's protected class (African-American) or who had not filed claims. In June of 1998, claimant's doctor ordered claimant off of work as a result of claimant not working light duty. The insured is alleged to have told claimant that light duty work would not be available when claimant finally recovered and returned to work. Claimant alleges that he was constructively terminated, resulting in lost wages, attorney's fees, costs, and mental, physical and emotional distress. Count one alleges disability discrimination/failure to accommodate. Count two alleges breach of contract/breach of implied promise of specific treatment under specific circumstances. Count three alleges unlawful retaliation. Count four is for racial discrimination. Claimant seeks damages, punitive damages, pre-judgment interest, costs and attorneys' fees. Worldly Insurance Company ("North Pacific") issued to ABC Corporation, S.W. 24th Street, Clark, Washington, Policy No. C with effective dates of April 19, 1998 to April 19, 1999 under Commercial General Liability Coverage Form CG The policy affords a per occurrence limit of $1,000,000, a personal and advertising limit of $1,000,000, a products-completed operations aggregate limit of $2,000,000, and a general aggregate limit of $2,000,000. The policy is a renewal of an earlier policy. Worldly also issued to ABC Corporation Policy No. ECL with effective dates of April 19, 1998 to April 19, 1999 under Commercial Excess Catastrophe Liability Coverage Form ECL 2 (7-96). The policy affords a per occurrence limit of $4,000,000, a products-completed operations aggregate limit of $4,000,000, and a general aggregate limit of $4,000,000. The policy is a renewal of an earlier policy.

2 The relevant portions of the CGL policy are as follows: SECTION I - COVERAGES COVERAGE A. BODILY INJURY AND PROPERTY DAMAGE LIABILITY 1. Insuring Agreement. a. We will pay those sums that the insured becomes legally obligated to pay as damages because of "bodily injury" or "property damage" to which this insurance applies... b. This insurance applies to "bodily injury" and "property damage" only if: (1) The "bodily injury" or "property damage" is caused by an "occurrence" that takes place in the "coverage territory"; and (2) The "bodily injury" or "property damage" occurs during the policy period. 2. Exclusions. This insurance does not apply to: a. Expected or Intended Injury "Bodily injury" or "property damage" expected or intended from the standpoint of the insured Workers' Compensation and Similar Laws Any obligation of the insured under a workers' compensation, disability benefits or unemployment compensation law or any similar law. e. Employer's Liability "Bodily injury" to: (1) An "employee" of the insured arising out of and in the course of: (a) Employment by the insured; or (b) Performing duties related to the conduct of the insured's business; or (2) The spouse, child, parent, brother or sister of that "employee" as a consequence of paragraph (1) above. This exclusion applies: (1) Whether the insured may be liable as an employer or in any other capacity; and (2) To any obligation to share damages with or repay someone else who must pay damages because of the injury. This exclusion does not apply to liability assumed by the insured under an "insured contract." COVERAGE B. PERSONAL AND ADVERTISING INJURY LIABILITY

3 1. Insuring Agreement. a. We will pay those sums that the insured becomes legally obligated to pay as damages because of "personal injury" or "advertising injury" to which this insurance applies... b. This insurance applies to: (1) "Personal injury" caused by an offense arising out of your business, excluding advertising, publishing, broadcasting or telecasting done by or for you; (2) "Advertising injury" caused by an offense committed in the course of advertising your goods, products or services; but only if the offense was committed in the "coverage territory" during the policy period. SECTION V - DEFINITIONS 1. "Advertising injury" means injury arising out of one or more of the following offenses: a. Oral or written publication of material that slanders or libels a person or organization or disparages a person's or organization's goods, products or services; b. Oral or written publication of material that violates a person's right of privacy; c. Misappropriation of advertising ideas or style of doing business; or d. Infringement of copyright, title or slogan. 3. "Bodily injury" means bodily injury, sickness or disease sustained by a person, including death resulting from any of these at any time. 12. "Occurrence" means an accident, including continuous or repeated exposure to substantially the same general harmful conditions. 13. "Personal injury" means injury, other than "bodily injury," arising out of one or more of the following offenses: a. False arrest, detention or imprisonment; b. Malicious prosecution; c. The wrongful eviction from, wrongful entry into, or invasion of the right of private occupancy of a room, dwelling or premises that a person occupies by or on behalf of its owner, landlord or lessor; d. Oral or written publication of material that slanders or libels a person or organization or disparages a person's or organization's goods, products or services; or e. Oral or written publication of material that violates a person's right of privacy. * * * 15. "Property damage" means: a. Physical injury to tangible property, including all resulting loss of use of that property. All such loss of use shall be deemed to occur at the time of the physical injury that

4 caused it; or b. Loss of use of tangible property that is not physically injured. All such loss shall be deemed to occur at the time of the "occurrence" that caused it. The following endorsements are relevant: CG WASHINGTON CHANGES This endorsement modifies insurance provided under the following: COMMERCIAL GENERAL LIABILITY COVERAGE PART 1. Exclusion e. of COVERAGE A BODILY INJURY AND PROPERTY DAMAGE LIABILITY (Section I Coverages) applies only to "bodily injury" to any "employee" of the insured whose employment is not subject to the Industrial Insurance Act of Washington (Washington Revised Code Title 51). With respect to "bodily injury" to "employees" of the insured whose employment is subject to the Industrial Insurance Act of Washington, exclusion e. is replaced with the following: This insurance does not apply to: (1) "Bodily injury" to an "employee" of the insured arising out of and in the course of : (a) Employment of the insured; or (b) Performing duties related to the conduct of the insured's business; or (2) Any obligation to share damages with or repay someone else who must pay damages because of the injury. This exclusion does not apply to liability assumed by the insured under an "insured contract". CG WASHINGTON CHANGES EMPLOYMENT-RELATED PRACTICES EXCLUSION This endorsement modifies insurance provided under the following: COMMERCIAL GENERAL LIABILITY COVERAGE PART A. The following exclusion is added to paragraph 2., Exclusions of COVERAGE A

5 BODILY INJURY AND PROPERTY DAMAGE LIABILITY (Section I - Coverages): This insurance does not apply to: "Bodily injury" to: (1) A person arising out of any: (a) Refusal to employ that person; (b) Termination of that person's employment; (c) Employment-related practices, policies, acts or omissions, such as coercion, demotion, evaluation, reassignment, discipline, defamation, harassment, humiliation or discrimination directed at that person; or (2) The spouse, child, parent, brother or sister of that person as a consequence of "bodily injury" to that person at whom any of the employment-related practices described in paragraphs (a), (b) and (c) above is directed. This exclusion applies: (1) Whether the insured may be liable as an employer or in any other capacity; and (2) To any obligation to share damages with or repay someone else who must pay damages because of the injury. However, paragraphs (1)(a) and (b) of this exclusion do not apply if such "bodily injury" is sustained by any "employee" of the insured whose employment is subject to the Industrial Insurance Act of Washington (Washington Revised Code Title 51). B. The following exclusion is added to paragraph 2., Exclusions of COVERAGE B PERSONAL INJURY AND ADVERTISING INJURY LIABILITY (Section I - Coverages): This insurance does not apply to: "Personal injury" to: (1) A person arising out of any: (a) Refusal to employ that person; (b) Termination of that person's employment; (c) Employment-related practices, policies, acts or omissions, such as coercion, demotion, evaluation, reassignment, discipline, defamation, harassment, humiliation or discrimination directed at that person; or (2) The spouse, child, parent, brother or sister of that person as a consequence of "bodily injury" to that person at whom any of the employment-related practices described in paragraphs (a), (b) and (c) above is directed. This exclusion applies: (1) Whether the insured may be liable as an employer or in any other capacity; and (2) To any obligation to share damages with or repay someone else who must pay damages because of the injury. However, paragraphs (1)(a) and (b) of this exclusion do not apply if such "personal injury" is sustained by any "employee" of the insured whose employment is subject to the Industrial Insurance Act of Washington (Washington Revised Code Title 51).

6 CS 557 (12-97) CHANGES IN COMMERCIAL GENERAL LIABILITY COVERAGE FORM This endorsement modifies insurance provided under the following: COMMERCIAL GENERAL LIABILITY COVERAGE PART SUPPLEMENTARY PAYMENTS COVERAGES A AND B is replaced by the following: We will pay, with respect to any claim we investigate or settle, or any "suit" against and insured we defend: 5. All costs taxed against the insured in any "suit". 6. Prejudgment interest awarded against the insured on that part of the judgment we pay. If we make an offer to pay the applicable limit of insurance, we will not pay any prejudgment interest based on that period of time after the offer. 7. All interest on the full amount of any judgment that accrues after entry of the judgment and before we have paid, offered to pay, or deposited in court the part of the judgment that is within the applicable limit of insurance. These payments will not reduce the limit of insurance. The relevant portions of the Commercial Excess Catastrophe Liability Policy are as follows: SECTION I - COVERAGES Coverage A. Bodily Injury and Property Damage Liability 1. Insuring Agreement a. We will pay on behalf of the "insured" the "Ultimate Net Loss" in excess of the "Retained Limit" because of "bodily injury" or "property damage" to which this insurance applies. No other obligation or liability to pay or perform acts or services is covered unless explicitly provided for under Defense and Supplementary Payments - Coverage A and B. This insurance applies only to "bodily injury" or "property damage" which occurs during the policy period. The "bodily injury" or "property damage" must be caused by an "occurrence". The "occurrence" must take place in the "coverage territory". We have the right and duty to defend the insured against any claim or "suit" against the "insured" seeking damages for "bodily injury" or "property damage" to which this

7 insurance applies... b. Damages because of "bodily injury" include damages claimed by any person or organization for care, loss of services or death resulting at any time from the "bodily injury". c. "Property damage" that is loss of use of tangible property that is not physically injured shall be deemed to occur at the time of the "occurrence" that caused it. 2. Exclusions This insurance does not apply to: a. Expected or Intended Injury "Bodily injury" or "property damage" either expected or intended from the standpoint of the "insured"... d. First Party Auto Laws; Workers' Compensation and Similar Laws Liability imposed upon the "insured or the "insured's" insurer under any of the following laws: (2) Any obligation of the insured under a worker's compensation, disability benefits or unemployment compensation law or any similar law. e. Employer's Liability "Bodily injury" to any "employee" arising out of occupational disease unless such "bodily injury" due to occupational disease is covered by "Underlying Insurance". But, in no event, shall the coverage afforded by this policy apply to any such "bodily injury" which is not covered by "Underlying Insurance". Coverage B. Personal and Advertising Injury Liability 1. Insuring Agreement This insurance does not apply to "bodily injury", "property damage" or "personal injury" and "advertising injury" (or "personal and advertising injury" if defined as such in your policy) arising directly or indirectly out of: a. We will pay on behalf of the "insured" the "Ultimate Net Loss" in excess of the "Retained Limit" because of "personal injury" or "advertising injury" to which this insurance applies. No other obligation or liability to pay or perform acts or services is covered unless explicitly provided for under Defense and Supplementary Payments - Coverage A and B. We will have the right and duty to defend the insured against any claim or "suit" against the "insured" seeking damages for "personal injury" or "advertising injury" to which this insurance applies... b. This insurance applies to "personal injury" only if caused by an "offense": (1) Committed in the "coverage territory" during the policy period; and

8 (2) Arising out of the conduct of your business, excluding advertising, publishing, broadcasting or telecasting done by or for you. c. This insurance applies to "advertising injury" only if caused by an "offense" committed: (1) In the "coverage territory" during the policy period; and (2) In the course of advertising your goods, products or services. SECTION V - DEFINITIONS 1. "Advertising injury" means injury arising out of one or more of the following "offenses": a. Oral or written publication of material that slanders or libels a person or organization or disparages a person's or organization's goods, products or services; b. Oral or written publication of material that violates a person's right of privacy; c. Misappropriation of advertising ideas or style of doing business; or d. Infringement of copyright, title or slogan. 4. "Bodily injury" means bodily injury, sickness or disease sustained by a person, including death resulting from any of these at any time. 13. "Occurrence" means an accident, including continuous or repeated exposure to substantially the same general harmful conditions. 18. "Personal injury" means injury, other than "bodily injury," arising out of one or more of the following "offenses": a. False arrest, detention or imprisonment; b. Malicious prosecution; c. The wrongful eviction from, wrongful entry into, or invasion of the right of private occupancy of a room, dwelling or premises that a person occupies by or on behalf of its owner, landlord or lessor; d. Oral or written publication of material that slanders or libels a person or organization or disparages a person's or organization's goods, products or services; or e. Oral or written publication of material that violates a person's right of privacy. 21. "Property damage" means: a. Physical injury to tangible property, including all resulting loss of use of that property. All such loss of use shall be deemed to occur at the time of the physical injury that caused it; or b. Loss of use of tangible property that is not physically injured. All such loss shall be deemed to occur at the time of the "occurrence" that caused it. The following endorsements to the excess policy are relevant: WASHINGTON CHANGES

9 EMPLOYMENT-RELATED PRACTICES EXCLUSION This endorsement modifies insurance provided under the following: COMMERCIAL EXCESS CATASTROPHE LIABILITY COVERAGE FORM A. The following exclusion is added to paragraph 2., Exclusions of COVERAGE A BODILY INJURY AND PROPERTY DAMAGE LIABILITY (Section I - Coverages): This insurance does not apply to: 1. "Bodily injury" to: a. A person arising out of any: (1) Refusal to employ that person; (2) Termination of that person's employment; (3) Employment-related practices, policies, acts or omissions, such as coercion, demotion, evaluation, reassignment, discipline, defamation, harassment, humiliation or discrimination directed at that person; or b. The spouse, child, parent, brother or sister of that person as a consequence of "bodily injury" to that person at whom any of the employment-related practices described in paragraphs (a), (b) and (c) above is directed. This exclusion applies: a. Whether the insured may be liable as an employer or in any other capacity; and b. To any obligation to share damages with or repay someone else who must pay damages because of the injury. However, paragraphs a. (1) and (b) of this exclusion do not apply if such "bodily injury" is sustained by any "employee" of the insured whose employment is subject to the Industrial Insurance Act of Washington (Washington Revised Code Title 51). B. The following exclusion is added to paragraph 2., Exclusions of COVERAGE B PERSONAL INJURY AND ADVERTISING INJURY LIABILITY (Section I - Coverages): This insurance does not 1. "Personal injury" to: b. apply to: a. A person arising out of any: (1) Refusal to employ that person; (2) Termination of that person's employment; ( 3) Employment-related practices, policies, acts or omissions, such as coercion, demotion, evaluation, reassignment, discipline, defamation, harassment, humiliation or discrimination directed at that person; or The spouse, child, parent, brother or sister of that person as a consequence

10 of "bodily injury" to that person at whom any of the employment-related practices described in paragraphs (a), (b) and (c) above is directed. This exclusion applies: a. Whether the insured may be liable as an employer or in any other capacity; and b. To any obligation to share damages with or repay someone else who must pay damages because of the injury. However, paragraphs a. (1) and (b) of this exclusion do not apply if such "personal injury" is sustained by any "employee" of the insured whose employment is subject to the Industrial Insuran ce Act of Washington (Washington Revised Code Title 51). WASHINGTON CHANGES This endorsement modifies insurance provided under the following: COMMERCIAL EXCESS CATASTROPHE LIABILITY COVERAGE FORM 1. Exclusion e. of COVERAGE A BODILY INJURY AND PROPERTY DAMAGE LIABILITY (Section I Coverages) applies only to "bodily injury" to any "employee" of the insured whose employment is not subject to the Industrial Insurance Act of Washington (Washington Revised Code Title 51). With respect to "bodily injury" to "employees" of the insured whose employment is subject to the Industrial Insurance Act of Washington, exclusion e. is replaced with the following: This insurance does not apply to: (1) "Bodily injury" to an "employee" of the insured arising out of and in the course of : (a) (b) Employment of the insured; or Performing duties related to the conduct of the insured's business; or (c) The spouse, child, parent, brother or sister of that "employee" as a consequence of (a) above. This exclusion applies: (2) Whether the "insured" may be liable as an employer or in any other capacity; and (3) To any obligation to share damages with or repay someone else who must pay damages because of the injury. This exclusion does not apply to liability assumed by the insured under an "insured contract". Your inter-office correspondence dated February 24, 2000 requests a coverage opinion and a draft letter to the insured.

11 In Washington, insurers must defend any suit where facts alleged, if proven, would render the insurer liable. Greer v. Northwestern National Insurance Company, 109 Wash.2d 191, 197 (1987); State Farm General Insurance Company v. Emerson, 102 Wash.2d 477, 486 (1984). The duty to defend is broader than the duty to indemnify. Truck Insurance Exchange of The Farmers Insurance v. Century Indemnity Company, 76 Wash. App. 527 (1995). The existence of a duty to defend is determined from the allegations contained in the complaint. Holland American Insurance Company v. National Indemnity Company, 75 Wash.2d 909, 911 (1969). COVERAGE A's Insuring Agreement, at paragraph 1.b.(2), provides that the policy covers bodily injury and property damage that occurs during the policy period. Claimant alleges wrongdoing by the insured commencing with the time claimant returned to work in April of 1998 and continuing through his constructive termination in June of Washington case law holds that the time of an occurrence for insurance coverage purposes is determined by when damages or injuries take place. See Castle & Cooke, Inc. v. Great American Insurance Company, 42 Wash. App. 508 (1986), rev. den., 105 Wash.2d 1021 (1986); Villella v. Public Employees Mutual Insurance Company, 106 Wash.2d 806 (1986); Cope Construction v. American Home Assurance Company, 28 Wash. App. 38 (1980), rev. den. 95 Wash. 2d 1023 (1981); Swift v. American Home Assurance Company, 22 Wash. App. 777 (1979); Gruol Construction Company v. Insurance Company of North America, 11 Wash. App. 632 (1974), rev. den., 84 Wash.2d 1014 (1974). The primary and excess policies under review incepted April 19, It is not known whether claimant's return to work after his injury occurred before or after that date. However, as the primary and excess policies are renewals of earlier policies which contain the same pertinent forms and endorsements, the conclusions reached in this analysis are the same regardless of which policy period is considered. COVERAGE A--BODILY INJURY AND PROPERTY DAMAGE LIABILITY affords coverage for damages the insured becomes legally obligated to pay as a result of certain "bodily injury" or "property damage" only if it arises out of an "occurrence" (paragraph 1.b), which is defined as an "accident" (paragraph 12 of SECTION V), subject to Exclusion a., which excludes "bodily injury" or "property damage" expected or intended from the standpoint of the insured. With regard to insurance coverage, Washington courts interpret an accident as an "unusual, unexpected and unforeseen happening." Sears v. Grange Insurance Association, 111 Wash. 2d 636, 638 (1988). "An intentional act cannot, by definition, be an accident." Roller v. Stonewall Insurance Company, 115 Wash. 2d 679, 683 (1990). For an act to constitute an "occurrence", the resulting damage must also be "neither expected nor intended from the standpoint of the insured." City of Medina v. Transamerica Insurance Company, 37 Wash. App. 360, 365 (1984), rev. den. 102 Wash. 2d 1004 (1984). In Washington, "whether or not an insured "expected" a particular event is a subjective test, requiring evidence as to the insured's state of mind." CLE Elum Bowl, Inc. v. Worldly Insurance Company, Inc., 96 Wash. App. 698, 703 (1999), rev. den. 139 Wash. 2d (2000). Claimant alleges that when he returned to work for the insured after recovering from an on-the-job injury, the insured did not supply him with light duty work as had been promised, but rather required him to work beyond his medical restrictions. Claimant also alleges that he was subjected to harassment and retaliation from the insured for having filed a claim with the Department of Labor & Industries, and for having sustained an injury requiring light duty. The insured is also alleged to have told claimant that light duty work would not be available when claimant finally recovered and returned to work, thus constructively discharging claimant. Claimant alleges that the insured's conduct is discriminatory as other workers who had not filed claims or were not in claimant's protected class had been provided with light duty and accommodations. The allegations against the insured are allegations of intentional conduct. The insured's failure to provide claimant with light duty work is not an accident, regardless of whether such work was or was not actually available. Similarly, the alleged harassment and retaliation does not constitute an accident or "occurrence" and may trigger the application of Exclusion a. The Supreme Court of Washington has held that intentional discrimination and acts or retaliation do not qualify as occurrences. E-Z Loader Boat Trailers, Inc. v. The Travelers Indemnity Company, 106 Wash.2d 901 (1986). However, claims for discrimination based upon disparate impact rather than disparate treatment may be premised on unintentional conduct, and thus may qualify as occurrences. Castle & Cooke, Inc. v. Great American Insurance Company, 42 Wash. App. 508 (1986), rev. den. 105 Wash..2d 1021 (1986). Claimant has not alleged disparate impact discrimination, but rather has alleged disparate treatment.

12 Accordingly, Worldly should decline to provide a defense or indemnification for pursuant to COVERAGE A as the damages sought do not arise out of an occurrence, and as any resulting "bodily injury" or "property damage" may have been expected or intended by the insured. "Bodily injury" or "property damage" is necessary, under Insuring Agreement paragraph 1.a. of COVERAGE A, to trigger COVERAGE A. "Bodily injury" is defined in SECTION V--DEFINITIONS as "bodily injury, sickness or disease sustained by a person, including death resulting from any of these at any time." "Bodily injury" does not include damages for purely emotional injuries. Daley v. Allstate Insurance Company, 135 Wash.2d 777, (1998); E-Z Loader Boat Trailers, Inc. v. Travelers Indemnity Company, 106 Wash.2d 901, (1986). Claimant has alleged that he sustained mental, physical and emotional distress as a result of the insured's actions. As claimant has alleged physical distress, claimant has alleged "bodily injury". However, it is important to note that pursuant to Washington law, claimant must be seeking damages for "bodily injury" resulting from the insured's discriminatory and retaliatory conduct, and not damages resulting from the original injury which incited the discriminatory and retaliatory conduct. The insured is barred from seeking recovery in this action for damages resulting from the original injury as recovery for that injury falls within the exclusive jurisdiction of the Industrial Insurance Act. Atlantic Mutual Insurance Company v. Roffe, Inc., 73 Wash. App. 858, 862 (1994). SECTION V defines "property damage" as "physical injury to tangible property, including all resulting loss of use of that property" or "loss of use of tangible property that is not physically injured." Claimant alleges economic loss in the form of lost wages. Purely economic loss unrelated to damage to tangible property does not constitute "property damage" within the meaning of the policy. Guelich v. American Protection Insurance Company, 54 Wash. App. 117 (1989); Prudential Property and Casualty Insurance Company v. Lawrence, 45 Wash. App. 111 (1986). Claimant's allegations thus do not qualify as "property damage" under COVERAGE A. Worldly should decline to provide a defense or indemnification for any damages sought which do not qualify as "bodily injury" or "property damage" as defined by the instant policy. COVERAGE A is subject to Exclusion d., which excludes any obligation of the insured under a workers' compensation, disability benefits or unemployment compensation law. Although the complaint alleges that claimant originally sustained an injury which was compensable under worker's compensation, claimant is suing the insured for damages caused by the insured's conduct as a result of the injury, and not for damages arising from the injury itself. The damages sought by claimant are not compensable under a workers' compensation, disability benefits or unemployment compensation law. Thus, Worldly should not rely upon Exclusion d. in determining its obligations to the insured. COVERAGE A is also subject to Exclusion e., the employer's liability exclusion. However, the standard exclusion has been replaced by the exclusion set forth in Endorsement CG The revised Exclusion e. applies to "bodily injury" to an employee of the insured arising out of and in the course of employment by the insured. A similar exclusion applying to "mental anguish or bodily injury to any employee arising out of and in the course of employment" was found to apply to claims for bodily injury and mental anguish arising from employment-related discrimination. Castle & Cooke, Inc. v. Great American Insurance Company, 42 Wash. App. 508 (1986), rev. den. 105 Wash.2d 1021 (1986). Worldly should therefore decline to provide a defense or indemnification for "bodily injury" to an employee of the insured arising out of and in the course of employment by the insured. Endorsement CG adds an employment-related practices exclusion. If the employment is subject to the Industrial Insurance Act of Washington, the portion of the exclusion excluding "bodily injury" arising out of the refusal to employ a person or termination of that person's employment is inapplicable. For the purposes of this opinion, we are assuming that claimant's employment is subject to the Industrial Insurance Act of Washington. The exclusion, as limited, removes from the policy coverage bodily injury to any person arising out of any employment-related practices, policies, acts or omissions, such as coercion, demotion, evaluation, reassignment, discipline, defamation, harassment, humiliation or discrimination directed at that person. Washington courts have not interpreted this exclusion. However, courts from numerous other jurisdictions have examined and effectuated the language of the employment-related practices exclusion as unambiguous. See, I.B.E.W. Local 1357, Waialeale v. American International Adjustment Company, 955 F. Supp (Hawaii 1997), aff'd. 142 F.3d 443 (9th Cir. 1998); Potomac

13 Insurance Company of Illinois v. Peppers, 890 F. Supp. 634 (S.D. Tex. 1995); United States Fidelity and Guaranty Company v. Mobile Convention and Visitors Corporation, No CB-C, 1993 U.S. Dist. LEXIS (Ala. December 10, 1993); Frank & Freedus v. Allstate Insurance Company, 52 Cal. Rpt. 2d 678 (Cal. App. 1996); Michelet v. Scheuring Security Services, Inc., 680 So.2d 140 (La. App. 1996), rev. den. 692 So.2d 371 (La. 1996); Meadowbrook, Inc. v. Tower Insurance Company, Inc., 559 N.W.2d 411 (Minn. 1997); Berman v. General Accident Insurance Company of America, 671 N.Y.S.2d 619, (1998). Claimant's causes of action all arise out of the insured's alleged discrimination and retaliation against claimant. Although claimant has alleged that the insured's actions resulted in a constructive termination of his employment, claimant has not pled a cause of action for constructive termination. In Washington, the theory underlying the claim against the insured, not the nature of the alleged injury, determines whether personal injury coverage or property damage or bodily injury coverage applies. CLE Elum Bowl, Inc. v. Worldly Insurance Company, Inc., 96 Wash. App. 698 (1999), rev. den. 139 Wash. 2d 1019 (2000), citing Kitsap County v. Allstate Insurance Company, 136 Wash.2d 567 (1998). The theories of liability pled by claimant all fall within the scope of the employment-related practices exclusion. "Bodily injury" arising out of such actions is excluded by the employment-related practices exclusion. Worldly should decline to provide the insured with a defense and indemnification as claimant's allegations are excluded by the employment-related practices exclusion. Under COVERAGE B--PERSONAL INJURY AND ADVERTISING INJURY LIABILITY, Worldly agrees to pay those sums that the insured becomes legally obligated to pay as damages because of "personal injury" or "advertising injury" to which the insurance applies. An "advertising injury" can only result from an offense committed in the course of advertising the insured's goods, products or services, and is not implicated by the facts alleged. However, COVERAGE B also affords coverage for "personal injury" caused by an offense arising out of the conduct of the insured's business. "Personal injury" is defined in SECTION V--DEFINITIONS to include false arrest, detention or imprisonment; malicious prosecution; the wrongful eviction from, wrongful entry into, or invasion of the right of private occupancy of a room, dwelling or premises that a person occupies by or on behalf of its owner, landlord or lessor; oral or written publication of material that slanders or libels a person or organization or disparages a person's or organization's goods, products or services; or oral or written publication of material that violates a person's right of privacy. Claimant has not alleged any of the offenses contained within the definition of "personal injury" or "advertising injury" have occurred. Additionally, claims for "personal injury" are also subject to the employment-related practices exclusion discussed above. Thus, COVERAGE B is not implicated in this case. With regard to the relief sought by claimant, the Insuring Agreement at paragraph 1.a. of each of COVERAGE A and COVERAGE B obligates Worldly to pay those sums that the insured becomes legally obligated to pay as covered damages. Claimant seeks damages, punitive damages, attorney's fees, prejudgment interest and costs. Washington courts interpret the term "damages" broadly to include punitive damages. The Boeing Company v. Aetna Casualty and Surety Company, 113 Wash.2d 869 (1990) (court held that unless otherwise defined in the policy indemnifying all sums that the insured is obligated to as damages, "damages" includes sums the insured owes that were awarded on a legal or equitable basis). The policy specifically states that Worldly will pay for costs and pre- and post-judgment interest in suits it defends. Awards of attorney's fees are not specifically addressed in the policy. The expenses of litigation, such as attorney's fees, are not generally considered to be damages. Kenworthy v. Pennsylvania General Insurance Company, 113 Wash.2d 309 (1989); Lincor Contractors, Limited v. Hyskell, 39 Wash. App. 317 (1984). If coverage was otherwise available, Worldly should decline to provide indemnification for any item of relief that does not properly constitute damages. Worldly has also issued a Commercial Excess Catastrophe Liability Policy to the insured. The insurance afforded by the excess policy mirrors the insurance afforded by the underlying policy, in that it applies to "bodily injury" and "property damage" caused by an "occurrence", and to "personal injury" and "advertising injury". As was discussed above, claimant has not alleged "bodily injury" or "property damage" caused by an "occurrence". Additionally, the "bodily injury" and "property damage" liability insurance is subject to the same intentional acts, employer's liability and employment-related practices exclusions discussed above. Thus, the "bodily injury" and "property damage" liability insurance afforded pay

14 by the Commercial Excess Catastrophe Liability Policy does not apply to this claim. Similarly, the "personal injury" and "advertising injury" liability insurance afforded by the excess policy has not been triggered, as claimant has not alleged any of the offenses which constitute "personal injury" or "advertising injury", and as the "personal injury" insurance is subject to the employment-related practices exclusion. Worldly should decline to provide the insured with a defense or indemnification under the Commercial Excess Catastrophe Liability Policy. In summary, Worldly Insurance Company should decline to provide a defense or indemnification pursuant to COVERAGE A as the damages sought do not arise out of an occurrence, and as any resulting "bodily injury" or "property damage" may have been expected or intended by the insured. Worldly should decline to provide a defense or indemnification for any damages sought which do not qualify as "bodily injury" or "property damage" as defined by the instant policy. Worldly should also decline to provide a defense or indemnification for "bodily injury" to an employee of the insured arising out of and in the course of employment of the insured. Additionally, Worldly should decline to provide the insured with a defense and indemnification as claimant's allegations are excluded by the employment-related practices exclusion. COVERAGE B is not implicated in this case. Worldly should also decline to provide the insured with a defense or indemnification under the Commercial Excess Catastrophe Liability Policy. A proposed letter to the insured is enclosed. Very truly yours, SHAPIRO & ASSOCIATES