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Burger King Must Pay Franchisee Directly For Intentional Discrimination Claims

August 26, 2005

Miami-based Burger King Corp. must pay a franchisee out of its own pocket for settling intentional discrimination claims because its insurer is not liable for such claims, a federal judge held in Burger King Corp. v. Lumbermens Mutual Casualty Co. (No. 04-20540, S.D. Fla.). The court specifically held that a CGL policy clearly and unambiguously bars coverage for intentional discrimination claims. Thus, U.S. Judge Patricia A. Seitz of the Southern District of Florida granted summary judgment to Lumbermens Mutual Casualty Co. and denied summary judgment to Burger King Corp. (BKC).

In 2000, LaVan Hawkins, a Burger King franchise owner, and his companies sued BKC in Michigan federal court for racial discrimination and other claims, alleging that BKC intentionally sabotaged and breached its contract with Hawkins wherein Hawkins was allegedly being denied opportunities that were afforded other BKC franchisees and was negatively singled out by BKC in part because of his race. The underlying action ultimately settled.

BKC filed this action, seeking a declaration that Lumbermens is contractually required to indemnify BKC for amounts paid to settle the underlying action. The policy was issued to Grand Metropolitan Inc. c/o The Pillsbury Co. and ultimately amended to include BKC as a named insured.

Lumbermens moved for summary judgment that its policy does not provide coverage for the Michigan discrimination claims, that BKC is improperly seeking coverage for amounts in excess of the actual settlement amount, that BKC is collaterally and judicially estopped from relitigating the amount paid to settle the Michigan action and that BKC has forfeited coverage rights because it failed to obtain the insurer's written consent to the settlement.

BKC moved for summary judgment, arguing that Lumbermens is estopped from denying coverage based on its analysts' prelitigation assurance that coverage existed, that the discrimination claims are covered under the policy's personal injury provision, that Lumbermens did not raise the failure to obtain written approval issue in its answer and has waived that affirmative defense and that BKC is entitled to coverage up to the $5 million policy limit.

According to BKC, coverage exists because disparate impact allegations were raised and the discrimination allegations were incorporated into Hawkins' other claims such as fraud and misrepresentation, which do not require intentional acts.

Applying New York law, Judge Seitz found that the policy clearly and unambiguously precludes coverage for the intentional discrimination claims, and that the specific allegations of the complaint are premised on a theory of intentional discrimination. 'Hawkins' complaint asserts that 'BKC intentionally sabotaged and breached the contract entered into with Hawkins,' and that Hawkins 'learned that the destructive actions of BKC against his interests were, in part, racially motivated.' The Complaint further alleges that 'Hawkins was being denied opportunities that were afforded other BKC franchisees and was otherwise negatively singled-out by BKC, in part, because of his race.' These statements all invoke BKC's alleged intent to discriminate against Hawkins. In contrast, the Hawkins complaint does not set forth any facts (such as, for instance, allegations that BKC's facially neutral policies negatively impacted on racial minorities, in general) that would support a disparate impact claim,' the judge said.