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New Jersey Court Analyzes Whether An Employee Constitutes An Insured (NJ)

July 11, 2019

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<p style="text-align: justify;">In <a href="https://law.justia.com/cases/federal/district-courts/new-jersey/njdce/2:2017cv04489/350516/49/"><em><a href="https://www.wcmlaw.com/wp-content/uploads/2019/07/Fellus-v.-Select-Medical-Holdings.pdf">Fellus v. Select Medical Holdings</a></em></a>, the District of New Jersey recently dismissed a doctor’s claim for coverage in an underlying sexual misconduct and medical malpractice lawsuit, affirming the well-established principle that an employee’s conduct outside the scope of employment precludes coverage under an employer’s policy.</p>
<p style="text-align: justify;">By way of background, Dr. Fellus was employed as a neurologist at Kessler Institute Rehabilitation Center.<span>  </span>Kessler’s professional liability policy with Columbia Casualty included coverage for Kessler’s “employees”, but applied “only for acts within the scope of their employment” at Kessler.<span>  </span>With respect to professional liability claims, their employees “are insured only for ‘professional services’ performed” on Kessler’s behalf.  In 2008, Lorette Schroth was injured in a motor vehicle accident and was referred to Dr. Fellus for treatment.<span>  </span>During her treatment, Schroth and Dr. Fellus became involved in a sexual relationship which lasted approximately a year.</p>
<p style="text-align: justify;">In 2010, Schroth sued Dr. Fellus in New Jersey state court, alleging sexual misconduct under New Jersey’s law prohibiting such conduct by licensed medical examiners, intentional infliction of emotional distress, negligent infliction of emotional distress, and medical malpractice.<span>  </span>After a trial and appeal, Schroth obtained a verdict totaling $1.5 million in compensatory damages, $1 million in punitive damages, and close to $500,000 in interest.  Dr. Fellus had filed a declaratory judgment in state court seeking defense and indemnification from Columbia based upon the policy issued to Kessler.<span>  </span>Columbia removed the case to federal court.</p>
<p style="text-align: justify;">In analyzing whether there was coverage under the policy, the court first addressed if Dr. Fellus qualified as an “insured” under the policy.<span>  </span>While the court held that Dr. Fellus was an “employee,” it held that there was no coverage because coverage was limited to “acts within the scope of their employment” with Kessler.  The court reiterated that, under New Jersey law, conduct is within the “scope of employment” where (a) it is of the kind the employee is employed to perform, (b) it occurs substantially within the authorized time and space limits, (c) it is actuated, at least in part, by a purpose to serve the employer, and (d) if force is used by the employee, such force is not unexpected by the employer.<span>  </span>The court expressly held that nothing in the range of services provided by a neurologist at a recovery center “w<span>ill include having a sexual relationship with a patient.”</span><span>  </span><span>Examining the record, the court found that there was nothing to suggest that even Dr. Fellus’s understanding of his duties would have included such conduct.</span><span>  </span><span>Therefore, the court held that he was not entitled to coverage in the underlying action. </span><span> </span></p>
<p style="text-align: justify;">Accordingly, this case offers further clarification and guidance with respect to the factors a court will look to in order to determine if an employee constitutes an insured under a policy.</p>
<p style="text-align: justify;">Thank you to Doug Giombarrese for his contribution to this post.  Please email <a href="mailto:chayes@wcmlaw.com">Colleen E. Hayes</a> with any questions.</p>

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