Risk Management



Employee-Related Suits on the Rise

By Kimberly Wittchow, JD
OMIC Insurance and Group Products Associates

[Digest, Fall 1998]

In the litigious business environment of the 1990s, ophthalmic practices of all sizes are increasingly vulnerable to employment practices liability suits. Small and large practices alike are discovering that discrimination, sexual harassment and wrongful termination suits can wreck havoc on their bottom line, as even frivolous or unsubstantiated claims must be defended, often at considerable expense to the practice.

The media is replete with stories of employers being sued even those who insist they “did everything right.” Take, for instance, the female employee who resigned and sued her former employer for sexual harassment in part because one of the company’s owners gave her a scarf on Valentine’s Day. The company claimed it investigated the situation after the employee complained and acted to protect her from further incidents. Nevertheless, a federal court jury awarded the plaintiff $82,000, which the company had to pay, along with its own substantial legal defense costs.

A case in the South arose when an accounting clerk in a medical office threatened to sue, stating that she was having sex with one of the directors. Previously a virgin, the woman claimed that on some occasions sex was consensual, but at other times she was forced to participate. Rather than face a Bible Belt jury, the practice opted to settle for over $35,000.

At one company, three former employees sued, alleging they were fired as a result of age discrimination. The three employees were able to prove that the rating system used by their employer to determine which employees to keep and which to terminate treated older employees unfairly. They won their case and were awarded $8.8 million in damages.

One young female doctor sued when she was not offered partnership after five years at a medical practice. Although she alleged that she had been discriminated against because of her gender and her pregnancy, the senior doctors claimed she was not offered partnership because her work was subpar. When new, potentially incriminating evidence came to light, the partnership settled for $22,500 and paid $5,000 in legal fees.

To make matters worse, damages in an employee suit for sexual harassment often do not end up with the employee’s claim against the offending co-worker. A recent trend has been a rapid rise in the number of counter complaints brought by the offending co-worker against the company for wrongful termination, demotion, defamation and breach of contract as a result of the harassment charges. These claims by supervisory level employees can be more expensive to defend and resolve than the underlying harassment suit.

Who Needs EPLI Coverage?

No ophthalmic practice is immune to lawsuits. Any practice with employees should seriously consider adding Employment Practices Liability Insurance (EPLI) coverage.

EPLI policies typically provide coverage for the health care entity; current and former appointed directors, trustees and officers; and current and former employees, including supervisory and managerial employees. Many carriers offer endorsements that allow other types of employees to be added to the policy. For instance, under the EPLI policy developed by OMIC and the American Academy of Ophthalmology, endorsements can be added to expand the definition of covered insured to include leased employees, independent contractors and leasing companies.

What Does EPLI Cover?

EPLI generally covers wrongful employment practices directed against any employee, former employee or employment applicant arising out of an employment relationship. OMIC offers an endorsement for third party coverage that includes claims brought by non-employees for sexual harassment or discrimination in the workplace. Wrongful employment practices covered by OMIC include:

  • Discrimination on the basis of race, religion, age, sex, national origin, disability or any other protected class established pursuant to federal, state or local law.
  • Harassment, sexual or other.
  • Wrongful termination, including wrongful discipline or evaluation; retaliation; demotion; failure to hire or promote; or breach of employment contract.

In considering which EPLI policy to buy, it is important to evaluate additional coverage features. For example, OMIC’s ELPI policy automatically includes coverage for prior acts. This means that coverage is provided for claims made during the policy period arising from incidents unknown to the company that occurred before the policy effective date. If a practice does not require prior acts coverage, OMIC can exclude it from the policy and discount the premium accordingly. Another important feature of OMIC’s EPLI policy is a duty to defend clause. This requires the carrier to defend against all covered claims regardless of their legitimacy. OMIC includes the duty to defend as a standard coverage feature.

Your EPLI carrier should allow you to select from a broad range of coverage limits. For example, OMIC policy limits range from $50,000 to $2 million per claim and in the aggregate, including defense expenses. Various deductibles are available starting at $5,000.

Risk Management in the Workplace

Two recent U.S. Supreme Court rulings (Ellerth V. Burlington Industries, 118 S. Ct. 2257 [1998] and Faragher v. City of Boca Raton, 118 s. Ct. 2275 [1998]) reminded employers that they can defend themselves against sexual harassment claims when there are adequate and workable procedures in place that invite employees to complain and allow the employer to take appropriate action against the offender.

OMIC, likewise, realizes that prevention is the key to both a discrimination-and-harassment-free work environment and to cost containment in the employment practices litigation arena. In December, OMIC conducted its first nationwide risk management audioconference on employment practices liability. A one hour EPLI program was held at the OMIC booth in New Orleans in conjunction with the Academy’s annual meeting. Additional EPLI-related programs will be held in 1999.

For information on OMIC’s program, please contact the Underwriting Department at (800) 562-6642, extension 639.

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