Evaluating Employer Insurance Coverages to Defend against Claimed Violations of the Affordable Care Act

by Wilson Elser

Employers have long been subject to lawsuits brought by employees for employment actions such as wrongful termination, discrimination and harassment. With the opening this week of the Health Insurance Marketplaces and the deadline for employers to provide the Notice to Employees of Coverage Options (Employee Notice) having come and gone, employers can add another employee claim to the list of potential litigation – employer violations of the Affordable Care Act (ACA).

The good news is that the Employer Mandate has been suspended until January 1, 2015. As a result, large employers will not have to provide minimum essential coverage to their full-time employees for another 14 months. The bad news is that some of the ACA’s mandates necessitating employer action have already gone into effect, such as the Employee Notice and various disclosure requirements. Consequently, it is anticipated that employers may be subject to a variety of new legal actions instituted by their employees for alleged failures to comply with existing and yet to be implemented ACA obligations.

For example, an uninsured sick employee may claim that he or she would have purchased insurance from the Health Insurance Marketplace had the employer provided the requisite Employee Notice announcing the existence of the Marketplace. Employers who fail to provide the requisite disclosures under the ACA may find themselves in litigation for failure to comply with these mandates. Employers who change their current health plan to health plans offered through the Marketplace may be subject to breach of fiduciary duty claims where employees allege that the Marketplace insurance plan is not as favorable as the prior plan. An employer who has converted some of its full-time employees to part-time status may be subject to litigation alleging that such action interfered with the employees’ insurance benefits. In short, employers should expect to experience an increase in their exposure to new causes of action under the ACA.

Existing Policies
There are several types of professional lines insurance policies that provide defense and indemnification to employers in the context of actions brought against them by their employees:

  • Director and officer liability insurance (D&O) protects directors and officers who are individually named in lawsuits brought against corporations.
  • Errors and omissions insurance (E&O) relates to claims for professional malpractice.
  • Employment practices liability insurance (EPLI) involves claims brought against a company (and potentially directors and officers) for wrongful termination, discrimination and harassment but typically does not cover claims brought under certain federal employment statutes, including the Employee Retirement Income Security Act (ERISA). 
  • Fiduciary liability insurance (FLI) protects employees, officers, directors and plan sponsors who operate in a fiduciary capacity with respect to employee benefit plans under ERISA.

Whether these professional lines insurance policies will protect an employer against actions brought under the ACA is an issue that employers should be focused on now.

Evaluating Coverage
Employers should review their professional lines insurance along with outside benefits consultants and attorneys to determine whether additional or different coverage may be appropriate to guard against these new ACA risks. The scope of policy exclusions, amount of coverage and whether there are gaps in coverage are just some of the issues that should be explored by employers. Additionally, employers should become educated as to any new insurance products that may be available or in development to address ACA liabilities.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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