Employee Lessee Not Entitled to Lessor’s Insurance

Contract that Fails to Fulfill state Statute Eliminates Right to Coverage

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A personnel leasing company added a lessee to its Employment Practices Liability Insurance (EPLI) and the lessee sought coverage under the policy only to be refused by the insurer because of a failure to have a state mandated contract which was a condition of the policy.

In TMH Medical Services, LLC v. National Union Fire Insurance Company of Pittsburgh, PA., No. 18-14991, United States Court of Appeals for the Eleventh Circuit (December 4, 2019) TMH Medical Services, LLC appealed from the judgment in favor of National Union Fire Insurance Company of Pittsburgh, Pa. in this insurance coverage case.

FACTS

In January 2017, TMH began doing business with a group of entities operating under the name Synuity. Synuity described itself as a Professional Employer Organization (PEO) offering a range of staffing and human resources outsourcing services, including payroll processing, tax remission and reporting, Workers Compensation and health insurance administration, and EPLI. One of the Synuity companies, Platinum-HR, LLC, provided payroll processing and tax remission and reporting services for TMH beginning in late January 2017.

In February 2017, TMH received written notice of workplace tort claims by two of its employees against TMH “and related persons and entities.” TMH tendered the claims to Synuity, seeking defense costs and indemnity under Synuity’s EPLI policy with National. The policy provided EPLI coverage for specified claims against Synuity and its PEO clients, under specified conditions.

Recognizing that the policy required, among other things, a written agreement between Synuity and its PEO client, TMH and Synuity prepared a “Service Agreement” using parts of two form contracts provided by Synuity. The Service Agreement bore an “entered into” date of January 1, 2017, though it was completed and executed by the parties on March 13, 2017, after TMH learned of the claims against it.

National Union agreed to provide a defense for the claims against TMH, subject to a reservation of rights, but ultimately determined that the claims were not covered under the policy and declined to provide indemnity for TMH or participate in the settlement of the claims. Eventually suit, and motions for summary judgment, the district court granted National Union’s motion, denied TMH’s, and entered judgment for National Union on all of TMH’s claims.

ANALYSIS

Under Florida law, an insurance contract is interpreted according to the plain language of the policy. Ambiguous terms are construed in favor of coverage, but if a policy provision is clear and unambiguous, it should be enforced according to its terms whether it is a basic policy provision or an exclusionary provision. In construing insurance contracts, courts read each policy as a whole, endeavoring to give every provision its full meaning and operative effect.

Synuity’s policy with National Union provided EPLI coverage for Synuity’s PEO clients, “but only with respect to PEO Client Company Claim(s).” Based on the various definitions and conditions in the policy, this meant that TMH was entitled to indemnity for its employees’ claims only if—among other conditions—it leased the claimant-employees from Synuity through a written employee leasing agreement that was in effect at the time the claims were made.

TMH did not have such an agreement with Synuity when it received notice of the claims (or at any other time).

The practice of employee leasing is regulated by statute in Florida. It is a crime for any entity not licensed by the state to operate as an employee leasing company, and licensed entities may lease employees only through written agreements that satisfy certain statutory conditions. Among other things, the leasing contract must contain provisions by which the leasing company:

1. reserves “a right of direction and control over leased employees assigned to the client’s location”;
2. assumes “responsibility for the payment of wages to the leased employees without regard to payments by the client to the leasing company”;
3. retains “authority to hire, terminate, discipline, and reassign the leased employees,” subject to the client’s approval; and
4. confirms that it has given written notice of the relationship between the employee leasing company and the client company to each leased employee it assigns to perform services at the client’s worksite.

Ultimately, Synuity did not provide either health insurance or Workers’ Compensation insurance for TMH’s employees. Writings in which the parties discuss available services but do not specify essential terms do not amount to a binding agreement under Florida law.

TMH contends that the Service Agreement executed by the parties in March 2017 met the policy’s requirement for a written PEO service agreement. But regardless of what other PEO services may have been contemplated in the Service Agreement, it did not meet Florida’s statutory requirements for an employee leasing agreement—and therefore could not meet the policy’s requirement for a written agreement to lease the claimants to TMH.

Because the Service Agreement failed to comply with multiple statutory requirements for employee leasing contracts, it was not a valid employee leasing agreement and since TMH did not have a valid written agreement to lease the employee-claimants from Synuity, the employees’ claims against TMH were not covered under Synuity’s EPLI policy with National Union.

ZALMA OPINION

Not only did the Eleventh Circuit read the full policy it also found it necessary to apply the requirements of Florida law. TMH had no contract with Synuity that complied with the statute nor did it have a contract that made Synuity an employee leasing company sufficient to require National to provide coverage. Since it kept total control of its employees TMH needed to purchase its own EPLI coverage and tried to get coverage by litigation instead of purchase.