Employment Liability Insurance Policies Unlikely to Cover Workplace Tort Claims Brought by Non-Employee Plaintiffs
In Penn Psych Center Inc. v. US Liability Ins. Co., a Pennsylvania state court addressed, for the first time, whether employment practices liability (EPL) insurance policies generally cover the costs of tort litigation brought against an employer and their employees by third-parties with no employment relationship to the insured.
The underlying action involved a suit against Penn Psychiatric Center brought by two former patients who alleged they were sexually assaulted by a Penn Psychiatric therapist. When its insurance carrier denied coverage of the underlying action, the center brought suit against that insurer claiming breach of contract, bad faith refusal of coverage, and a breach of the duty of the carrier to defend or indemnify Penn Psychiatric.
Among the claims the former patients brought against Penn Psychiatric were negligent hiring and negligent supervision. The EPL policy in question enumerates covered claims, including “Workplace Tort,” under its “Wrongful Acts” section. The policy defines “Workplace Tort” as restricting coverage to “employment-related” claims. The Pennsylvania Superior Court reasoned that negligent supervision and other workplace tort claims are not considered “employment-related” when they are brought by parties without an employment relationship to the insured.
Furthermore, the court read the clause “involving and brought by any Employee, former Employee, or applicant for employment” as modifying the entirety of the preceding “Wrongful Acts” provision, thus restricting the coverage of all enumerated claims against both the insured entity and individual insureds to those brought by past, present, or future employees. This interpretation was supported by both state/federal precedent and the policy’s repeated and consistent requirement that claims other than those enumerated in the “Third-Party” provision be “employment-related.”
Courts across the country have held that EPL insurance policies generally do not cover claims brought by third-party plaintiffs with no past, present, or future employment relationship with the insured. The purpose of EPL insurance policies is to provide coverage for claims brought my former, current, or future employees. Multiple jurisdictions have held that workplace tort actions, including negligent retention, negligent supervision, and negligent hiring claims, are not covered by EPL policies when brought by non-employee plaintiffs. Thus, absent language expressly providing third-party or non-employment-related coverage for a particular type of claim, Pennsylvania state courts will be reluctant to interpret EPL policies as covering workplace tort actions brought by non-employees in the future.
Thanks to Beatrice Segal for her contribution to this post. Should you have any questions, feel free to contact Tom Bracken.