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The Seventh Circuit ruled that an insurer had no duty to defend a suit alleging that a law firm had failed to pay certain benefits to a retired employee, finding that the suit alleged only uncovered breach of contract.  Hartford Casualty Ins. Co. v. Karlin, Fleisher & Falkenberg, LLC, 2016 WL 2849449 (7^th Cir. May 16, 2016).

A retired attorney sued his former employer alleging that it had failed to compensate him for unused vacation time and sick leave in violation of his employment contract and applicable law.  Hartford denied coverage on the basis that the claims did not allege any covered acts of negligence.  An Illinois federal district court agreed and granted Hartford’s summary judgment motion.  The Seventh Circuit affirmed.

The law firm argued that the attorney’s claims, although sounding in contract, were actually based on negligent acts – namely, the firm’s failure to maintain accurate records and/or properly administer employee benefits.  The Seventh Circuit rejected this argument, holding that the underlying claims were based on money owed by virtue of the employment contract.  The court further held that Hartford was not estopped from denying coverage notwithstanding a seven-month delay in disclaiming coverage.  The court found that a delay cannot create coverage that does not exist and that, in any event, the law firm should have reasonably known that a breach of the employment contract was not covered by the policy.