More Legal Protection

June 1, 2004

Employment Practices Liability Insurance (EPLI) protects against lawsuits by employees

If you're a practicing physician, you're always aware of the possibility that a dissatisfied patient might sue you. What you may not expect is a lawsuit from a source much closer to you: your own employees. Unfortunately, in the litigious society we live in, what goes on in your office today may come back to haunt you tomorrow in the form of a lawsuit. 

But there's an increasingly popular type of insurance coverage that can help you deal with this possibility -- it's called Employment (or Employers') Practices Liability Insurance (EPLI).

You're accountable

After years of working with physicians, I've found that most are not as tuned in to business or practice management issues as perhaps they could be. That's understandable -- you probably already spend hours outside the office trying to keep your medical knowledge and skills up-to-date.

But your employees are not working with the same handicap. They've heard about the medical assistant who sued a former boss for sexual discrimination, about the secretary who was laid off and got even by bringing a wrongful discharge lawsuit, about the employee in his 50s who brought an age discrimination suit against a physician group.

If you still believe you can hire and fire at will,  it's time to come out of the Dark Ages. That period is long past, and your employees know it.

But, you ask, aren't many employment arrangements "at will"? Many are. This model allows employers to terminate employees at any time, for any legal reason, or for no reason at all. However, many employers who have invoked the at-will clause after terminating a staff member have found themselves facing a discrimination or wrongful termination claim.

Even if you're not aware of what's going on in your front office --  if you're making rounds when the staff is picking on an unpopular coworker, or the male tech in your practice is making inappropriate comments to your medical assistant --  you, as the employer, are accountable for those actions. 

Whether the employees' claims are justified or not, they can sue you, and it will cost you money to defend yourself. Keep in mind, too, if you end up going to trial, the deck (e.g., the jury) may be stacked against you, the "wealthy physician" who has somehow mistreated the "poor employee."  

Expands your coverage

When I advise physicians about getting Employment Practices Liability Insurance, I often hear, "I already have liability coverage." But your physician liability policy does not cover employment-related issues. Or they say, "I can't believe that I would really need this. It won't happen to me." Unfortunately, it does. Our office has handled several claims against physician employers in the past two years. They didn't expect to get sued, nor did they realize the level of accountability that they had for the actions of their employees.
It's a problem that affects businesses of every size and type.

According to the Society for Human Resource Management, three out of five companies are sued by former employees every year. Although some experts estimate that less than 1 percent of all employees go to court, the median compensatory jury award in such cases has risen from just over $146,000 in 1999 to $200,000 in 2002, according to Jury Verdict Research.

Risky situations

A quick Internet search will reveal many examples of lawsuits against employers. For instance:

  • Employees offended by the nature of jokes told or photos displayed in an office. Even if the jokes aren't told directly to them, or the photos aren't in an area in which they usually work, employees can sue --  and the courts have held their employers liable.
  • Employees who are told --  even in a joking way --  that they are "too old" or "not young enough" to handle a particular job.
  • Women or minority candidates who are passed over for promotion or who are paid less than a coworker doing a similar job.
  • Employees who are terminated without previous warnings or without a thorough (and written) explanation of the reasons behind the dismissal.

The list of examples goes on and on and includes many situations less clear-cut than these.

How EPLI works


Insurers started offering EPLI policies about 10 years ago, and the demand for this product has risen each year -- as have the costs for a policy.

EPLI policies cover "intentional acts" that a business makes in hiring, firing, and supervising employees. It provides coverage for claims brought by past or present employees, job applicants, and third-party or government agencies (such as the Equal Employment Opportunity Commission) against the organization and its directors, officers and/or employees.

It covers issues such as:

  • Discrimination (based on age, sex, race, or religion) in hiring, firing, or treatment at work;
  • Sexual harassment;
  • Discrimination against those with disabilities (protected groups under the Americans with Disabilities Act);
  • Issues surrounding employees involving the Family Medical Leave Act;
  • Improper termination;
  • Failure to promote; and
  • Failure to employ (yes, you can even be sued by someone you decided not to hire).

The cost of EPLI varies with the size of your practice, the number of employees you have, and the limits, deductibles, and copayments that you choose. If you're thinking about buying EPLI coverage, it's important to carefully review the policy's language to check for coverages and exclusions. For example:

  • Does it cover investigative and defense costs? The costs of an appeal? Does the insurer provide a lawyer, or do you select your own? Do you make payments and then receive reimbursement?
  • Who decides whether to settle a claim or take it to court -- you or the insurer? 
  • Does the policy exclude acts that occurred before the policy was in effect? (It is sometimes possible to get extended coverage.)
  • Does the policy offer you assistance if the employee goes to a government agency such as the EEOC or a similar administrative board?

EPLI policies do not usually cover the costs of punitive damages or civil or criminal penalties.

Policyholders face scrutiny

As the number of employment-related claims and lawsuits rise, insurers have become more particular about whom they will accept as policyholders. That means when you apply for coverage, you will be expected to show that you have policies and procedures in place to serve as your first line of defense against these types of claims.

Good employment practices start with the hiring process. Interview candidates thoroughly and do background checks on them. (Have they actually worked where they say they've worked? Do they have the educational credentials they claim?) Include skills testing as part of the process. Ask other employees to sit in on at least some of the interview so that they can get a sense of how the applicant might fit in with coworkers.

Even if your office is small, it's a good idea to have protective legal documents including an at-will employment agreement and written personnel policies and procedures that cover issues such as sexual harassment, the right to arbitration, and grievance policies. 

 Don't ignore smoke signals. If you hear an employee complaining about discrimination, you'd better start talking about it right away. Acknowledging problems the moment they surface may prevent them from spinning out of control. Keep good records about the problem or complaint and what you do to resolve it. (For more information on investigating actions within your practice, visit our Web site, www.PhysiciansPractice.com to access "Take a Look at Yourself," by Paul Angotti, September 2003 issue.)

Request an exit interview when employees leave voluntarily. Ask why they are leaving to see if there were problems you weren't aware of. Document everything.

Get help when you need it. In a small practice, it's unlikely you have a dedicated human resources (HR) person who has expertise with employment practices. For help, visit Web sites for free information, like www.hr.com and hrpowerhouse.com; or hire an HR consultant. If you're the target of an employee complaint, it can help to have someone to talk to.

Finally, make an appointment to talk with your insurance agent or financial adviser about Employment Practices Liability Insurance. Ignoring the need for it may expose you and your practice to serious financial risks.

Trevor 'Chip' Lewis, Jr., CFP, is Managing Director of PSA Financial Center, Inc. in Lutherville, Md. He was designated one of the Top 250 Financial Planners in Worth magazine in 2001, and the Top 150 Best Financial Advisers for Physicians in Medical Economics in 2002. Among other professional organizations, Mr. Lewis has been active in the leadership of the National Financial Planning Association and the National Association of Planned Giving. He can be reached at chip@psafinancial.com or via editor@physicianspractice.com.

This article originally appeared in the June 2004 issue of Physicians Practice.