Pleading in Suit Between Medical Practice Partners Fails to Trigger Duty to Defend Under Employment Practices Liability Policy

The Ohio Court of Appeals has affirmed that an insurer owed no duty to defend under an employment practices liability policy where a lawsuit was brought by employees of the insured who were also former partners and shareholders, and the suit was premised solely on the employees’ rights as former partners and shareholders.  Orthopedic & Neurological Consultants, Inc. v. Cincinnati Ins. Co., 2018 WL 460738 (Ohio Ct. App. Jan. 18, 2018).

Several physicians (the “Doctors”) sold their ownership interests in the insured medical practice but remained as employees.  The ownership interests they sold consisted of their shares of the medical practice and interests in a related real estate partnership.  The Doctors then signed new employment agreements.  Shortly thereafter, the Doctors filed suit against the medical practice, alleging breaches of the stock purchase and partnership buyout agreements.  The medical practice tendered the lawsuit to its EPL insurer.  The EPL insurer contended that it owed no duty to defend because the policy only covered allegations by “past or present employees” of “breach[es] of … employment agreements,” “employment related misrepresentation,” and “wrongful retaliation.”  In ensuing coverage litigation, the trial court granted summary judgment for the insurer.

The appellate court held that the lawsuit did not trigger the EPL insurer’s duty to defend. The Doctors’ complaint alleged that the medical practice had used one Doctor’s alleged breach of a non-compete provision in an employment agreement as a reason to suspend payments under the stock purchase agreement.  The medical practice contended that this triggered the duty to defend.  The appellate court disagreed, and held that this allegation was offered only to “discredit [the medical practice’s] asserted rationale for [breaching the stock purchase agreement]” and was not itself a claim “premised on any alleged violation of the employment agreement.”