Pennsylvania Labor and Employment Blog : Pennsylvania Labor and Employment Lawyer & Attorney : McNees Wallace & Nurick Law Firm : Human Resources, Workplace and Business Law : Harrisburg, Lancaster, Allentown, Lehigh

This post was contributed by Michael R. Kelley, Esq., Chair of McNees Wallace & Nurick LLC's Insurance Recovery & Counseling Group.

Let's say that you are having a Holiday party (with alcohol served) at your home, or you are a business owner and have a voluntary "company" party for your employees. If someone becomes "visibly intoxicated" at your party, are you as the host of the party liable if the visibly intoxicated guest leaves your party and injures himself or someone else? Does your homeowners or commercial liability policy cover you for defense costs and for a settlement or judgment if you get sued? What about worker's comp coverage for your employees?

In Pennsylvania, the courts have ruled that the Dram Shop Act (which covers alcohol-related liabilities) limits liability for serving intoxicated persons to only those who serve for money, unless the servee is under 21. So, social and business hosts that are not in the business of providing alcohol for money can definitely be civilly liable for serving persons under 21 years of age. However, social and business hosts are generally not liable under the Dram Shop Act for serving alcohol to those 21 and older. But, courts leave open the possibility of a common law action for negligence if a social or business host serves a visibly intoxicated person and knows or should know that the person will be driving, or engaging in some other dangerous activity.

The answer to the insurance coverage question depends on your specific coverages. In some cases, unless you specifically purchased liquor liability coverage, your homeowners and commercial liability policies will not cover you if you are sued under either the Dram Shop Act or the common law. Check your insurance policy. If "liquor liability" is a specific exclusion, you are not covered. If the policy is silent on this, you are covered. This is an area of coverage that has evolved over time, so make sure to check your policy. We recommend having insurance for liquor liability claims if you plan to spike the egg-nog this holiday season.

If an employee becomes intoxicated and is subsequently injured after attending a "voluntary" company party, there is a question as to whether your worker's comp policy will cover it. If the party is truly voluntary, the claim may not be covered. If, despite being "voluntary," employees are expected to attend the party and it is seen by employees has having an impact on their employment status, worker's comp coverage likely will cover the injuries. Based on experience, courts look to find worker's comp coverage in these scenarios and only deny coverage if employees clearly were not required to attend and attendance had no bearing on employment status.

So, what is a good social or business host to do? Make sure that your guests don't have too much to drink this Holiday season, and, if they do, make sure that they have a safe ride home. It's not only good sense, it's good insurance sense too. Also, make sure you have liquor liability coverage on your homeowners or commercial liability policy – just in case.
 

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Pennsylvania's Mini-COBRA law became effective July 10, 2009. The law provides COBRA-like medical insurance continuation to employees who work for smaller business not covered by the federal law. The Department of Insurance clarified some of the coverage issues and provided a model notice for covered businesses to provide to employees. Employees who elect Mini-COBRA may also be eligible for a 65% premium assistance provided by the federal stimulus legislations. Fortunately, small business will not need to "front" the premium assistance payment because Pennsylvania's Mini-COBRA law places the obligation on the insurer.

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Employment Practices Liability Insurance (EPLI) can provide valuable protection; particularly,  given the predicted rise in employment related legal claims and enhanced government enforcement initiatives. Furthermore, EPLI remains a relative bargain in the continued “soft” insurance market and employers should consider adding or increasing insurance coverage to protect against employment claims. EPLI insurance is somewhat quirky and the following are some considerations when evaluating policies:

1.         Coverage: EPLI policies usually cover claims of wrongful discharge, workplace harassment and discrimination. Many offer a more comprehensive list of covered acts, including negligent hiring/supervision/evaluations, invasion of privacy, defamation and intentional infliction of emotional distress. Coverage typically applies to claims made by full time employees so as to exclude those by part-timers, temporary, seasonal and independent contractors. In comparing policies, look for one that has the most expansive coverage. 

2.         Exclusions: EPLI policies exclude many claims based on the statute that creates the legal right or the activity that gives rise to the claim. Exclusions apply to the Fair Labor Standards Acts; the National Labor Relations Act; the Worker Adjustment and Retraining Notification Act (WARN); the Consolidated Omnibus Budget Reconciliation Act (COBRA); the Employee Retirement Income Security Act (ERISA); the Occupational Safety and Health Act (OSHA); the costs associated with providing "reasonable accommodation" under the Americans with Disabilities Act (ADA); as well as claims arising out of downsizing, layoffs, workforce restructurings, plant closures or strikes. Punitive damages are always excluded. Carefully evaluate the excluded claims in light of your business practices. In the case of multi-state operations, be aware that some state laws create substantial employment rights that must also be evaluated under the policy language.

3.         Policy Limits and Deductibles: Policy limits and deductibles usually apply on a per claim and aggregate basis. For example, coverage may be limited to $250,000 for each separate claim with an overall aggregate cap of $1 million for all claims. Employers must formulate their insurance goals in setting the appropriate deductibles and limits. Some employers view EPLI insurance as catastrophic coverage and are willing to accept a high deductible that allows them to handle smaller claims themselves. However, other employers are looking for more blanket coverage.

4.         Defense Costs, Selection of Counsel and Settlement: Defense costs are usually included within the EPLI policy’s limits, which has good and bad points. Many times, the legal expense is the largest cost to an employer in dealing with merit less claims. However, including defense costs means that every dollar an employer spends defending a claim reduces the amount available for settlement or to pay a judgment. Since the existence of insurance coverage must be disclosed as part of discovery in most law suits, a plaintiff’s attorney will factor insurance coverage into his or her case evaluation. The defense cost feature may influence plaintiffs’ counsel to try to settle early, rather than force an employer to incur litigation costs that will only erode the insurance dollars available for potential settlement. Employment claims often have significant employee relations ramifications making settlement a particularly important issue. Insurers view employment claims the same as any other insurance matter by evaluating only the potential for liability and the amount of damages. The employer and insurer may be at odds over settling a case. EPLI policies address this stalemate by either giving the insurer the right to settle without the employer’s approval or, more frequently, giving an employer control over settlement, but adding a “hammer clause”. These clauses are designed to limit the insurer’s potential exposure if the policyholder passes up an opportunity to settle a claim recommended by the insurer. Hammer clauses provide that if there is an offer to settle a claim that the policyholder refuses accept, then the insurer will not be liable for a subsequent settlement or judgment in excess of a rejected settlement amount.  

5.         Policy Types and Insurance Company Notification: EPLI policies are typically written on a “claims made” basis meaning that the claim must be incurred during the coverage period and reported to the insurer during an extended reporting period. Employers who have already experience significant layoffs prior to the effective date of coverage will not have claims arising from those actions covered by new insurance; however, if an employer increases coverage, it may be able negotiate a retroactivity for the larger policy limits. Since employment actions may take years to turn into a claims, an employer may be left with no coverage if the policy is dropped or tail coverage isn’t purchased. Untimely notice to an insurance carrier can void coverage for and employment claim.

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The American Recovery and Reinvestment Act has passed both the House and Senate and awaits the President's signature. The substance of the Act as it relates to COBRA continuation subsidies is as follows:

COBRA Subsidy: Eligible Employees who are involuntarily separated from employment can receive a 65% subsidy toward COBRA premiums for up to 9 months. The Eligible Employee or a third party must pay the remaining 35% of the COBRA premium. Employers cannot pay this amount. Severance agreements that offer employer-paid health continuation should be drafted to take advantage of the subsidy.

Employee Eligibility: Individuals who have been involuntarily terminated between September 1, 2008 and December 31, 2009 with annual incomes less than $125,000 (individual) or $250,000 (joint) are eligible for the COBRA premium assistance. The amount of the subsidy covers both employee and family coverage. The premium assistance is not considered income to the Eligible Employee. 

Employer/Health Plan Payroll Tax Credit: Employers or health plans (if they administer COBRA benefits) must front the COBRA subsidy amount and in exchange receive a credit against payroll taxes for the cost of the subsidy. 

Duration of Subsidy: The subsidy terminates upon offer of any new employer-sponsored health care coverage or Medicare eligibility.

Special Elections and Alternate Enrollment Options: Qualified individuals, who initially decline COBRA coverage, have an additional 60 days after they receive notice of the special election period to elect to receive the subsidy. The election period begins on the date of enactment. Group health plans may provide a special enrollment right for eligible individuals to elect different coverage under the plan in conjunction with a COBRA continuation coverage election. The alternate coverage must meet certain requirements and may not be more expensive than the original coverage.

 Notice Requirements: COBRA notices must include information on the availability of the premium assistance. Model notices from the Department of Labor will be published 30 days after enactment.

Effective Date:  The law is effective for premiums as of the first calendar month following the date of enactment.

UPDATE:  IRS Releases Information for Employers to Claim COBRA Assistance Credit on Payroll Tax Form

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