United States: Do Your Employment Practices Or D&O Liability Policies Insure Against Immigration Enforcement Actions?

Last Updated: July 25 2014
Article by Lowndes Christopher Quinlan

Policyholders might expect that their employment practices liability and/or directors' and officers' liability insurance policies would insure against U.S. Immigration and Customs Enforcement actions. As one insured recently discovered to its detriment, not all of these policies insure against such risks. As with all insurance policies, the particulars of the policy language dictate the extent of coverage.

McCalla Corporation operated a number of restaurants in Wichita, Kansas. In March 2011, it sought to update proof of employment eligibility documents for its workforce. During this process, a supervisor accepted a fake resident alien card from a longtime manager as proof of her employment eligibility. In August 2012, apparently after an audit, Immigration and Custom Enforcement opened an investigation and served a warrant on McCalla. In November of that year, the federal government filed a single-count criminal information alleging McCalla violated 18 U.S.C. § 1546(b)(2) for knowingly aiding and abetting the use of an identification document, having reason to know the document was false. The government alleged the resident alien card was an obvious fake and the supervisor should have been suspicious about the speed at which the manager was able to produce the card after it was requested. Several months later, and after burning through more than $104,000 in attorneys' fees, McCalla entered a plea, accepted a $300,000 fine and paid a forfeiture of $100,000.

During the investigation, McCalla tendered the claim to its insurer, Certain Underwriters at Lloyd's, London, which had issued McCalla a combination employment practices liability and directors' and officers' liability insurance policy. The day after McCalla entered its plea, Lloyd's informed its insured that it was declining coverage. McCalla responded with a declaratory judgment action; however, the court entered summary judgment for Lloyd's. McCalla Corp. v. Certain Underwriters at Lloyd's, London, 2014 WL 1745647 (D. Kan. May 1, 2014) (applying Illinois law).

The court appeared to acknowledge that the insuring agreement of the employment practices liability policy was broad enough to encompass the Immigration and Customs Enforcement action. The employment liability section insured against claims (defined to include criminal actions) for "wrongful employment practices," which included "wrongful failure or refusal to adopt or enforce adequate workplace or employment practices, policies or procedures." Id. at *4. The court determined, however, that the employment practices policy was limited by its terms to claims brought "by or on behalf of an Employee, Former Employee, or applicant for employment." Id. Because the claim was brought by the government − and not on behalf of an employee, former employee or applicant − the employment practices liability coverage did not apply.

Coverage under directors' and officers' liability policies is typically broader than that found under employment practices liability policies. Nevertheless, the court also refused to find coverage under that policy section. The court identified three separate grounds for its decision. First, the court concluded that the government's action was not a "claim." The policy defined "claim" as "a civil, criminal, administrative or regulatory proceeding commenced against any Insureds in which they may be subjected to binding adjudication of liability for damages or other relief ..." The criminal information did not seek damages. The court reasoned that the criminal information did not seek "other relief." Other relief, the court explained, was civil or equitable in nature. Because the government's criminal proceeding did not seek damages or "other relief," that action did not meet the definition of a "claim."

Next, the court determined the criminal action did not seek "loss" as defined by the policy. The definition of "loss" included damages but excluded taxes, fines or penalties. McCalla conceded that the fines levied by the judgment fell outside of coverage, but argued the forfeiture was not a fine. The court disagreed on the grounds the forfeiture was punitive in nature. Id. at *7-8. It further ruled that the forfeiture was uninsurable at law, because it represented the insured giving up something it should not have had in the first instance. Id. at *8-9. As a third basis, the court found that the criminal plea fell within several "final adjudication" exclusions. Id. at *10. The court, however, did not reproduce those exclusions in its opinion.

The court got this decision wrong, at least with respect to the directors' and officers' liability coverage. The term "other relief" in the definition of "claim" is ambiguous and the court should have liberally construed the term in favor of coverage. Moreover, interpreting "other relief" so narrowly renders meaningless the term "criminal" in the definition of claim. Under the court's definition, a criminal matter would never seek "other relief," so a criminal action could never be a "claim." This is clearly not the intention of the policy.

The court's interpretation of the definition of "loss" is also flawed. According to the court, the purpose of forfeiture is to divest an individual of proceeds of a crime, property involved in a crime or property facilitating a crime. Here, however, the crime was the poor decision made by a restaurant supervisor to accept a bogus resident alien card. No property was involved in the crime; this was an administrative violation. Thus, the forfeiture did not represent the disgorgement of proceeds in the traditional sense. The judgment was closer akin to an award of damages, so denying coverage for this amount served no purpose.

The court also ignored the reality that sometimes parties plead in criminal matters for the same reason they settle in civil matters – to cap the uncertainty of litigation, as well as attorneys' fees. This begs the question of what impact Lloyd's failure to defend its insured had on McCalla's decision to enter a plea.

The McCalla decision is under appeal and we hope the Tenth Circuit will correct the trial court's mistakes. For other policyholders with Immigration and Custom Enforcement action exposures, we recommend counsel review their policies to determine whether these risks may be covered. If not, some insurers offer an immigration coverage extension/defense sublimit endorsement, which provides a $25,000 sublimit for defense costs incurred due to an immigration enforcement action. It also may be possible to add or expand such coverage through negotiation with the underwriter. A knowledgeable broker may assist in this instance.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

In association with
Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions