The following example is based on a real case. Our client, a health care provider, was sued by a former employee for sexual harassment. The rambling complaint alleged not only the usual employment-related hostile work place, negligent supervision and harassment claims, but it also threw in an allegation that the employee was a patient of the offending supervisor, a doctor.

Our client had both employment practices liability coverage (“EPLI”), and a medical malpractice policy that provided professional liability coverage, issued by two different insurers. The lawsuit was essentially an employment-related case. The medical malpractice claim was ancillary. Our client wanted experienced employment law counsel appointed to defend the case, and thought the EPLI policy logically should apply. Under Ohio law, both policies obligated each insurer to defend the entire complaint.

But it was more complicated than that. The policies contained “other insurance” provisions. The EPLI policy provided that:

This insurance is primary except when all or any part of “loss’ is also insured under any other prior or current policy. If any other insurance issued by another insurer applies to any “claim,” then this insurance is excess over that other insurance, whether primary, excess, contingent or on any other basis, unless that other insurance was purchased specifically to apply excess of this policy.

The medical malpractice policy also had a similar “excess” type “other insurance” provision. Applying standard rules of law to reconcile competing “other insurance” provisions, these provisions should have cancelled each other out, such that neither would be given effect. But in this case, the medical malpractice insurer agreed to defend and indemnify the entire suit, and the EPLI insurer withdrew defense that it had been providing.

The client had to change defense counsel in mid-stream. On the other hand, the medical malpractice policy paid for the defense in addition to limits, while the EPLI policy’s limits were eroded by the payment of defense costs, an important factor to take into account in a case where there is significant liability exposure.  

Issues relating to the selection of defense counsel, whether a defense is provided within or in addition to limits, the application of deductibles, and the existence of exclusions, all merit careful evaluation even in apparently simple cases where plenty of coverage seems to be available. Even in such seemingly simple cases, it’s complicated. Wise policyholders should engage coverage counsel early to assist in maximizing the coverage for which they bargained.