Protect & Defend columnist Ed Branam, DVM, is the veterinary and animal services program manager at Safehold Special Risk Inc. A 1977 graduate of the Michigan State University College of Veterinary Medicine, Dr. Branam has worked in the insurance industry for the past 20 years. He is a former Sacramento, California, veterinarian and a former veterinary affairs manager with Hill’s Pet Nutrition.Read Articles Written by Ed Branam
In today’s litigious environment, protecting your veterinary practice against an ever-expanding set of risks is more important than ever. Fire, theft, vandalism and professional liability are no-brainers. Another risk, an employment practice liability claim, often takes a backseat, but the chance of encountering one is on the rise. Many of them are driven by what’s referred to as “social inflation,” or societal changes primarily responsible for increasing the cost of claims at a rate well above general economic inflation. These include plaintiff-friendly legal decisions, social media influence, the erosion of tort reform and the avoidance of historical mitigation strategies.
The result is year-over-year increases in the frequency of employment practice liability claims and their financial costs. It’s especially true in states such as California, Michigan, New York and Texas.
Understanding the Concept
Employment practice liability includes but isn’t limited to claims of:
- Wrongful termination.
- Harassment of a sexual, verbal or physical nature.
- Discrimination, including gender, age, race, religion, pregnancy and disability.
- Unfair hiring or promotion.
- Unfair discipline.
- Infliction of emotional distress.
- Breach of employment contracts.
- Mismanagement of employee benefits plans.
The list goes on. Wrongful termination is the most common claim. Fortunately, employment practice liability insurance (EPLI) protects a business against such an allegation. Additionally, such policies might cover claims involving wage violations and third parties, such as veterinary clients and independent contractors.
Most EPLI policies respond only to claims “reported” during the policy period. That provision differs from a typical property and liability policy, which responds to claims “originating” during the policy period. Confusing? Yes, but it’s vital when canceling an EPLI policy. Therefore, discuss your options with an insurance professional.
EPLI policies typically offer choices of deductibles. However, don’t be surprised to get quotes considerably higher than your standard insurance policies, especially if you’re in a higher-risk state.
Furthermore, just to add salt to the wound, employers, even if they win, remain responsible for their legal fees.
Seven out of 10 businesses don’t have employment practice liability protection. Why don’t all veterinary hospitals have it? Common reasons include:
- “It’s too expensive”: Remember that the price of any insurance coverage is directly proportional to the degree of claims frequency and the financial exposure to the insurance company.
- “I think I already have it”: Policyholders typically fall into one of two categories: those with a small amount of EPLI coverage and those whose business owners or general liability policies exclude it. Either way, they’re inadequately protected.
- “I’ve been in practice for many years and never had a problem”: The same argument holds for many other aspects of business. Unfortunately, making decisions based on history instead of today’s legal and societal environment is potentially costly.
- “Everyone here is like friends and family”: From a risk perspective, such a thought process isn’t the reality. Statistically speaking, the closer the interpersonal relationship, the greater the animosity and desire for retribution compared with strict business relationships.
In addition, not having a dedicated human resources professional or formal policies and procedures around hiring, termination, employee reviews, codes of conduct, conflict resolution and discipline increases the risk of a claim dramatically.
The Real World
What follows is an example illustrating my EPLI perspective.
A client of mine owns a multidoctor practice. I received a call informing me that a female veterinarian had sued, claiming gender salary discrimination. Almost immediately, a second female veterinarian filed an identical claim.
Despite aggressively denying the allegations and after months of legal pingpong, my client settled out of court to mitigate the negative impact of the cases on his team and because of the ongoing legal expenses and potentially significant court verdicts. The two claimants received $400,000 and $250,000, respectively, plus legal costs.
Of particular interest was the fact that the practice owner is a female veterinarian. Unfortunately for her, she had delegated all employee management responsibilities, including supervising salary equity and hiring, to her male practice administrator.
In this instance, replacing a doctor was difficult during the pandemic. In response, the practice offered a male veterinarian several financial incentives to join the team. No consideration was given to the current veterinarians. Regardless of any degree of culpability, inadequate oversight led to allegations of unfair business practices and an expensive outcome.
Fortunately, my client had a comprehensive EPLI policy with a $1 million coverage limit.
How Much Is Enough?
EPLI claims, even those with doubtful merits, often cost $100,000 or more, depending on the number of plaintiffs and any settlements or judgments.
To gauge whether you have enough EPLI, check your business owners policy. What and how much does it cover? Most standard liability policies exclude employment practices claims or cover only up to $10,000.
That said, a few business liability policies offer excellent EPLI endorsement options of up to $100,000. The major advantage of an EPLI endorsement is the availability of deductibles as low as $1,000 and a significantly lower premium than in a standalone policy.
Regardless of your choice, I encourage all my clients to have a minimum of $100,000 in EPLI coverage. Some protection is better than nothing.
How to Prevent Claims
Good business practices and treating all employees equally are the best ways to verify your company’s innocence against allegations of unfairness or improper actions. In addition, understanding employee rights is paramount.
Internally, educate your managers and employees about minimizing the potential for problems. Also, establish clearly defined expectations and protocols detailing what to do if one occurs.
EPLI might not be cheap, but neither are plaintiffs’ claims. When considering the legal costs associated with one lawsuit, combined with the emotional and indirect financial costs to you and your practice, why would you not have EPLI? Don’t put it off.