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EPLI Coverage is Governed by Definition

By Michael W. Fox, Esq.

Although it's probably only a matter of time, there are still not many EPLI coverage questions that have been decided. In fact, I can only remember writing about one prior case that I have commented on at Check Your EPLI Policy - When Coverage For Discrimination Doesn't Mean The Most Common Type of Discrimination Claim.

And I would not have caught the latest one, Valley Imaging Partnership Medical Group LP v. RLI Ins. Co. (9th Cir. 3/5/08) [pdf] an unpublished decision, if it hadn't been for the ever vigilant work of the folks at Alaska Employment Law.

There's not a clear explanation of the underlying situation in the appellate decision. However, from the district court summary judgment opinion ($ Pacer) it appears that VIP was a doctor's practice which performed imaging services for a hospital. The underlying suit for which the EPLI carrier was contesting coverage was based on an employee, Hernandez, who brought a sexual harassment suit against VIP.

Hernandez was a registration clerk at a VIP office which was on the campus of the hospital. Pursuant to a Service Agreement between VIP and the hospital, she was actually paid by the hospital, but reported to VIP personnel and VIP reimbursed the hospital for her wages plus 26% (apparently to cover benefits).

VIP bought the EPLI policy, which defined employee as "any person who receives wages or a salary from the Entity for work that is directed and controlled by the Entity..."

Unfortunately VIP, which I am sure intended and thought it had EPLI insurance, learned the important lesson that the definitions in a policy are critical. Here the above definition, didn't fit the actual situation since the registration clerk "received [her] wages or salary" from the hospital, not the entity.

As the 9th Circuit wrote:

That VIP reimbursed [the hospital] does not change that fact that [the hospital] was the entity paying Hernandez?s salary and that, therefore, Hernandez was not a VIP employee as defined by the insurance contract.

Bottom line, no coverage. But the lesson is clear -- make sure you have read the policy carefully to ensure that it covers your particular situation.

Full post as published by Jottings By An Employer's Lawyer on March 20, 2008 (boomark / email).