A Liberty Mutual Insurance Co. unit does not have to pay a judgment against a now-bankrupt clothing retailer based on a prior acts exclusion in its coverage, a federal appeals court said Wednesday, affirming a lower court ruling. 

Beginning in 2005, male sales employees, but not the female employees, of New York-based retailer John Varvatos Retailers Inc. were required to wear Varvatos clothing at work and entitled to obtain $12,000 in Varvatos clothes annually, according to the ruling by the 2nd U.S. Circuit Court of Appeals in New York in Tessa Knox et al. v. Ironshore Indemnity Inc. 

In 2015, Varvatos also began to offer its female sales employees a discount at a related store if they purchased clothing out of their personal funds.  

The female employees filed suit against the company and were awarded a $2,862,407.41 judgment but, because Varvatos filed for bankruptcy, only received $193,145.53.  

They filed suit against Varvatos’ insurer, Liberty Mutual unit Ironshore Indemnity, based on a New York insurance law that provides injured parties with a direct cause of action against a tortfeasor’s insurer. 

The U.S. District Court in New York ruled against the workers, based on a prior acts exclusion in the insurer’s policy that excluded coverage for wrongful acts that occurred prior to April 30, 2012. 

Its ruling was affirmed by a unanimous three-judge appeals court panel. The district court “correctly found that the Prior Acts Exclusion unambiguously excludes coverage for the underlying judgment against Varvatos because Varvatos instituted the discriminatory clothing allowance prior to April 30, 2012, and maintained it after that date,” the panel said. 

“Varvatos’s introduction of the discount offer to female employees in 2015 does not alter this conclusion because, as the parties acknowledge, nothing changed about the allowance provided to male employees and, as Appellant successfully argued in the district court, the discount offered to female employees was not comparable in value to the male clothing allowance,” the panel said, in affirming the lower court’s ruling. 

Insurer attorney Luigi Spadafora, of Winget, Spadafora & Schwartzburg LLP in New York, said in a statement, “We are very pleased with the 2nd Circuit upholding the dismissal of this case.” The plaintiff’s attorney did not respond to a request for comment.