By Christopher J. Carney on June 7, 2018
Employment Practices Liability (“EPL”) Insurance is designed to protect businesses from losses associated with employment claims brought by employees and former employees. While policies vary in terms of what is covered, typically EPL insurance covers employers and its employees against claims of harassment, discrimination and wrongful termination based upon protected class status as well as defamation, invasion of privacy, false imprisonment, negligent supervision and other common law claims arising out of the employment relationship.
Ohio’s Tenth Appellate District in Orthopedic & Neurological Consultants, Inc. v. Cincinnati Ins. Co., 2018-Ohio-185 (Ohio Ct. App. Jan. 18, 2018) recently refused to provide an overly broad view of the allegations in a lawsuit so as to implicate EPL coverage, even though the policy at issue had a broad definition of what constituted an employment “claim.” The policy as issued defined a “claim,” in pertinent part, to mean a civil proceeding commenced by the filing of a complaint, brought by a past or present employee, alleging the “breach of any oral, written or implied contract or quasi-contract,” an “employment-related misrepresentation,” and “wrongful retaliation.”
Here are the facts.
In the underlying action, plaintiffs, former shareholders in a physician’s practice group and partners in a real estate partnership with the other shareholders in the practice group (“Simek plaintiffs”), asserted multiple claims against the other shareholders and the practice group relating to the defendants’ fiduciary and contractual obligations to plaintiffs. Prior to filing suit, the Simek plaintiffs sold back their shareholder interests in the practice group and partnership interests in the real estate. Three agreements were necessary to complete the transaction: 1) a purchase of the partnership interest agreement, under which the Simek plaintiffs’ sold their partnership interests to the individual defendants; 2) a stock purchase agreement to effectuate the sale of the Simek plaintiffs’ shares in the practice group; and 3) new employment agreements between the Simek plaintiffs and the practice group. The Simek plaintiffs’ complaint clearly alleged a breach of the stock purchase agreement, but a question remained as to whether the underlying complaint alleged a breach of the employment agreements.
After the underlying suit was filed, the individual defendants and physicians practice group sued Cincinnati Insurance alleging the insurance company breached its duty to defend and indemnify, arguing that the underlying lawsuit met the definition of “claim” under the policy because the suit alleged a breach of the employment agreements. The parties each moved for summary judgment on the issue of the insurer’s duty to defend and indemnify. The trial court ruled in favor of the insurer, holding that there was no duty to defend and the decision was appealed.
On appeal, the individual defendants and practice group in the underlying action argued the Simek plaintiffs’ complaint invoked the insurer’s duty to defend because it alleged that appellants’ breached their employment agreements by improperly exercising a liquidated damages provision. However, the court of appeals affirmed the holding that the underlying complaint asserted a breach of the stock purchase agreement and held that any reference to the employment agreements in the complaint was ancillary to the real claim – a breach of the stock purchase agreement – and there was no allegation that the employment agreements were breached.
Orthopedic & Neurological Consultants is a good illustration that, in order to trigger EPL coverage, the facts alleged in the suit must fit within the definition of “claim” in the policy.
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