No matter how complete your insurance portfolio, there is one policy – one you probably never heard of – that you should definitely consider adding to it.
A few years ago, I spoke with a dermatologist in California who experienced every employer’s nightmare: He fired an incompetent employee who promptly sued him for wrongful termination and accused him of sexual harassment to boot. The charges were completely false, and the employee’s transgressions were well documented, but defending the lawsuit, successfully or not, would have been expensive. So the dermatologist’s lawyer persuaded him to settle it for a significant sum of money.
Disasters like that are becoming more common. Plaintiffs’ attorneys know all too well that most small businesses, including medical practices, are not insured against employees’ legal actions, and usually cannot afford to defend them in court.
Fortunately, there is a relatively inexpensive way to protect yourself: Employment Practices Liability Insurance (EPLI) provides protection against many kinds of employee lawsuits not covered by conventional liability insurance. These include wrongful termination, sexual harassment, discrimination, breach of employment contract, negligent hiring or evaluation, failure to promote, wrongful discipline, mismanagement of benefits, and the ever-popular “emotional distress.”
EPLI would have covered the California dermatologist, had he carried it, against his employee’s charges. In fact, there is a better-than-even chance that the plaintiff’s attorney would have dropped the lawsuit entirely once informed that it would be aggressively defended.
Some liability carriers are beginning to cover some employee-related issues in “umbrella” policies, so check your current insurance coverage first. Then, as with all insurance, you should shop around for the best price, and carefully read the policies on your short list. All EPLI policies cover claims against your practice and its owners and employees, but some cover claims against full-time employees only. Try to obtain the broadest coverage possible so that part-time, temporary, and seasonal employees, and if possible, even applicants for employment and former employees, also are covered.
Look for the most comprehensive policy in terms of coverage. Almost every EPLI policy covers the allegations mentioned above, but some offer a more comprehensive list of covered acts, such as invasion of privacy and defamation of character.
Also be aware of precisely what each policy does not cover. Most contain exclusions for punitive damages and court-imposed fines, as well as for criminal acts, fraud, and other clearly illegal conduct. For example, if it can be proved that you fired an employee because he or she refused to falsify insurance claims, any resulting civil suit against you will not be covered by any type of insurance.
Depending on where you practice, it may be necessary to ask an employment lawyer to evaluate your individual EPLI needs. An underwriter cannot anticipate every eventuality for you, particularly if he or she does not live in your area and is not familiar with employment conditions in your community.
Try to get a clause added that permits you to choose your own defense attorney. Better still, pick a specific attorney or firm that you trust, and have that counsel named in an endorsement to the policy. Otherwise, the insurance carrier will select an attorney from its own panel who may not consider your interests a higher priority than those of the insurer itself.
If you must accept the insurer’s choice of counsel, you should find out whether that attorney is experienced in employment law, which is a very specialized area. And, just as with your malpractice policy, you will want to maintain as much control as possible over the settlement of claims. Ideally, no claim should be settled without your expressed permission.
As with any insurance policy you buy, be sure to choose an established carrier with ample experience in the field and solid financial strength. A low premium is no bargain if the carrier is new to EPLI, or goes broke, or decides to cease covering employment practices liability.
Above all, make sure that you can live with the claims definition and exclusions in the policy you choose, and seek advice if you are unsure what your specific needs are before you sign on the dotted line.
Dr. Eastern practices dermatology and dermatologic surgery in Belleville, N.J. He is the author of numerous articles and textbook chapters, and is a longtime monthly columnist for Dermatology News. Write to him at [email protected].