EPLI Coverage is Governed by Definition
by Michael Fox
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 one prior case that I have commented on, see 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 Co. (9th Cir. 3/5/08) [pdf] an unpublished decision, if it hadn't been for the ever vigilant work of the folks at Alaska Employment Law.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 a sexual harassment suit against VIP brought by Hernandez.
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 (defined as VIP) 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 VIP, 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.