If You Get Sued: Liability, Loopholes, Policies, and Politics

On many occasions participants in seminars for federal employees have asked if they should purchase insurance that would cover the costs of defending themselves from lawsuits brought against them. Here are a few considerations when you make your decision.

For the past two decades, I have earned my living teaching labor and employee relations seminars for Federal supervisors, managers and union officials. On many occasions participants have asked if they should purchase insurance that would cover the costs of defending themselves from lawsuits brought against them—either by another agency employee (an unhappy subordinate) or by members of the public. I tell them that I’m not in the business of providing advice regarding insurance. Please bear that in mind if you read what follows.

Insuring against disaster

The question of such policies arose in my mind over the past few months as my wife and I have been shopping for earthquake insurance—something the recent disaster in Haiti brings into clear focus. I live in Seattle and am aware that the earth below us shifts from time to time.

I became particularly familiar with natural disasters, when hurricane Hugo—a Category 5 storm left my house with half a roof, floors pickled in salt water (I lived 2 blocks from the ocean), and lots of related damage. My homeowner’s policy (as residents along the Gulf Coast were later to learn after Katrina) covered none of the extensive damage.

Weeks after the storm, my insurance agent stopped by as I was clearing mountains of debris to present a “courtesy check” for $500. We both knew it was all I would see from my homeowner policy. Fortunately, I was carrying two insurance policies in addition to my homeowner’s coverage. One was for damage due to wind/hail and the other from flooding. I was able to rebuild. Then I moved to Seattle—an earthquake zone. Go figure.

The eyes of the beholder

As FedSmith readers know, insurance has everything to do with a person’s perception of risk. So it is with Feds who worry about lawsuits filed against them—whether for firing a subordinate or for making a decision that affects members of the public. Feds work for agencies as diverse as the Patent and Trademark Office, Environmental Protection Agency, and Federal Aviation Administration. Their decisions may adversely affect others…and those folks may sue you. If you’re a supervisor or manager, the perception of risk may be even greater.

To address this fear, tort liability insurance for Feds was invented. Over the years, several groups and associations have come to recommend and offer such policies for their members and Federal agencies often pay half of the premium costs for their law enforcement and management staff members who opt for coverage.

What’s past is prologue

All of the above has led me (a non-attorney) to do some cursory research into the Federal Tort Claims and the Westfall Acts. The former dates back to 1946, while the latter is more formally known as the Employees Liability Reform and Tort Compensation Act of 1988. The Westfall Act is codified in 28 USCA 2679 and came about in response to the Supreme Court’s decision in Westfall v Ervin (484 U.S. 292). It attempts to answer the question: When can a lawsuit against a civil servant proceed into the court system (when liability insurance would prove worth years of premiums), and when is such a suit actually against the agency that Fed serves in an official capacity?

The Act reads, in part:

“Upon certification by the Attorney General that the defendant employee was acting within the scope of his office or employment at the time of the incident out of which the claim arose, any civil action or proceeding commenced upon such claim in a United States district court shall be deemed an action against the United States under the provisions of this title and all references thereto, and the United States shall be substituted as the party defendant.”

The Act goes on to require that civil law suits filed against Feds in state courts will, upon such certification by the Department of Justice, be removed to Federal District Court. The United States will become the defendant and personal liability for your actions as a Fed is no longer an issue.

The Westfall Act was tested in an interesting and rather complicated case (Martinez v Lamagno) that began in 1993 with the US District Court for the Eastern District of Virginia, went all the way to the Supreme Court (515 U.S. 417) only to be remanded. In Lamagno, a DEA agent was operating a government-leased vehicle in Colombia when he hit another car and injured the foreign nationals in that vehicle. They sued him personally and, after years of litigation, were told that the Attorney General had correctly substituted the United States as defendant.

Heads I win, tails you lose

In examining one of the liability policies being marketed to Federal employees (and I believe that all offerings are similar) it states that coverage is for actions “…which are committed or arise out of the ‘course and scope of employment’ of the “Insured Member’…” That phrase, “course and scope of employment” [my italics] is actually put inside quotation marks by the underwriter. Is it only coincidental that the exact same phrase is used in the Westfall Act—the law that immunizes civil servants from personal lawsuits?

If this private insurance coverage is actually tied to an Attorney General decision, which required by the Westfall Act, it effectively means that you are covered only for those cases where you won’t need coverage! Perhaps more importantly, when you do need coverage (when the Justice Department doesn’t certify that you were acting within the scope of your employment) it’s not at all clear whether the policy will pick up the pieces and help you. After all, if the AG rejects you, you must have acted outside “the course and scope of your employment”. Sorry.

All of this will prove confusing for some readers. Insurance policies often are. Absent a careful reading and understanding of the fine print, many of my South Carolina neighbors thought their homeowner policy would cover hurricane damage. It didn’t. I have no personal experience with Federal employee liability coverage. I’m just wondering if it’s a misleading business if it only covers you when you don’t need coverage.

What’s left to cover?

After receiving an unsolicited e-mail from one of these vendors, I’m also aware that such liability coverage commonly extends to administrative hearings and investigations. The e-mail stated:

Federal executives and managers are most at risk for administrative and disciplinary matters. This can be in the form of:

  • an EEO complaint;
  • a management investigation;
  • an OIG or OSC investigation/complaint;
  • a whistleblower or ethics complaint;
  • a complaint from the public; or
  • any allegation of wrongdoing.

Access to an attorney would:

  • defend against allegations;
  • prepare you for the agency administration or investigation process;
  • attend the investigative interview with you; and
  • defend you in any resulting disciplinary action (both at the agency level and at the MSPB).

The “Weingarten Right”, familiar to many readers, is reserved for union representation when answers to questions might result in disciplinary action.

In my experience, non-unionized Feds (by law, supervisors and managers cannot not be unionized) may not have a right to representation in some of these settings. I have known cases where managers were questioned, they requested a representative assist them and were told “No”. Having an insurance policy is unlikely to change that answer. Of course, each of the above-listed settings is quite different from the others. Again, read the fine print and ask the relevant questions.

Blessed by Public Law

Finally, I kept wondering why government agencies subsidize such policies for their employees. If a manager is accused of embezzlement, investigated and fired—should that same agency be underwriting the manager’s defense before the Merit Systems Protection Board? How about one who has physically assaulted a coworker or a member of the public? Are the taxpayers are funding the lawyers on both sides?

Some web searches led me to something I had overlooked for more than a decade. I quickly found a posting from the Department of Justice. It is a memo from Justice to NOAA explaining when and why Feds get part of their liability insurance premiums paid by their agency.

Here’s what I should have known:

“In 1996, as part of the Omnibus Consolidated Appropriations Act for Fiscal Year 1997 (“Omnibus Act”), Congress enacted legislation authorizing the reimbursement of “qualified employees” of the government for up to one-half the costs incurred by such employees for professional liability insurance. See Pub. L. No. 104-208, Div. A, Title I, § 101(f), 110 Stat. 3009 (incorporating Title VI, § 636 of the Department of the Treasury, Postal Service, and General Government Appropriations Act, 1997, 110 Stat. 3009-363 to 3009-364) (1996). As subsequently amended – including an amendment making reimbursement mandatory rather than permissive – the statute now provides in relevant part:

Notwithstanding any other provision of law, amounts appropriated by
this Act (or any other Act for fiscal year 1997 or any fiscal year thereafter) for salaries and expenses shall be used to reimburse any qualified employee for not to exceed one-half the costs incurred by such employee for professional liability insurance.”

Wow! What prompted our legislators to require reimbursement for half of a Fed’s liability insurance premiums? After all, they passed the Westfall Act that immunized civil servants from the very lawsuits these insurers purport to cover.

Was this one of those “special interest” laws that gets slipped into budget bills at the last minute? I honestly have no idea. For all I know, this could have been one of those “earmarks” I heard about during the last presidential campaign.

The business that sent me an unsolicited sales pitch via e-mail is in it for the money. The annual premium and the one-half reimbursement were spelled out clearly. The Tort Claims and Westfall Acts weren’t. They wrote me:

“Congress enacted special legislation requiring agencies to reimburse all federal agency managers and supervisors up to 1/2 the cost of professional liability insurance. This congressional action clearly demonstrates Congress’ official support and belief that managers and supervisors should be able to have ‘peace of mind’ to help them make the tough decisions that are part of the job.” [Emphasis in original]

Bottom lines

I have no dog in this fight. I’m not in the civil service, nor the insurance business, nor do I represent folks who are sued. I know that having earthquake insurance brings me peace of mind and that the value of any policy is in the eyes of the beholder. I wonder, however, whether supervisory liability policies actually pay out much in benefits. It seems as if most of the important claims (if you are actually sued) will end up excluded from coverage.

After Hurricane Hugo left me with a devastated house, I collected a lot more from my wind/hail and flood policies than I had paid in premiums. I was glad I opted for the coverage. Perhaps that’s happening to Feds who sign up for liability insurance, however, I’m left with doubts.

Given the circumstances of tort liability laws and laws that mandate government subsidies of liability insurance premiums, it’s time we understood more about a business whose target market consists of Federal supervisors, managers, and law-enforcement officials.

Perhaps Federal attorneys reading this article can advise readers of their take on professional liability policies, their value, and any of the law/case law covered in this piece. After all, had I been sued during my years of Federal service, I would have been asking them for advice.

About the Author

Robbie Kunreuther is the Director of Government Personnel Services (GPS). GPS provides 1 to 3-day seminars to Federal agencies in four subject areas: Dealing with performance and conduct issues; Developing sensible performance appraisal criteria; Fostering cooperative labor-management relations; and Applying mediation skills in the workplace. Over the years, Robbie has trained thousands of Federal supervisors, managers, HR specialists, and union officials. For more information about him and GPS, go to trainingfeds.com.