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A federal appeals court has upheld the denial of insurance coverage for Rice Enterprises LLC, a former McDonald’s franchisee in the Pittsburgh area, in a case stemming from the sexual harassment and assault of underage employees by a restaurant supervisor.

In a nonprecedential decision issued Wednesday, the U.S. Court of Appeals for the Third Circuit ruled that two insurers—Zenith Insurance Co. and RSUI Indemnity Co.—were correct in denying coverage, citing policy exclusions for employee harassment and misconduct.

The case involved claims brought by "L.H.," a former underage employee who was sexually assaulted by her manager in 2021. The lawsuit, which later contributed to Rice Enterprises' bankruptcy, alleged the company failed to prevent ongoing abuse by the supervisor, who had a prior conviction for sexual assault.

The panel affirmed a lower court’s dismissal, stating that the assault fell under exceptions to Rice’s insurance policies. Specifically, Zenith’s policy excluded coverage for damages related to “harassment,” which the court found applicable to the sexual misconduct in question.

“Appellant provides no authority that the term 'harassment' cannot include sexual misconduct,” wrote Judge Marjorie O. Rendell in the opinion, joined by Judges Michael A. Chagares and Anthony J. Scirica.

RSUI's umbrella policy was also deemed inapplicable, as Rice Enterprises failed to demonstrate that the underlying policies had been exhausted.

The appeal was part of a broader legal effort by Rice Enterprises to seek indemnification after settling with victims, including a $4.35 million settlement paid to L.H. from the proceeds of the company’s asset sale to McDonald’s USA.

The case is Rice Enterprises LLC v. RSUI Indemnity Co. et al., Case No. 24-1880, in the U.S. Court of Appeals for the Third Circuit.