Employment Practice Liability Insurance

By: Lonny Lessard – Account Executive

As its name implies, Employment Practices Liability Insurance (EPL) insures against liability arising from employment practices. This is a relatively new form of insurance that provides protection for an employer against claims made by current, former or potential employees. It provides coverage for discrimination, wrongful termination of employment, failure to be promoted, sexual harassment and other employment related allegations. Coverage is provided for the firm and its directors and officers

Comprehensive General Liability (“CGL”) policies, unlike EPL policies, provide only general liability coverage, insuring against claims for bodily injury and property damage – that is, tangible damages. Moreover, intentional acts, commonly claimed in employment suits, and bodily injury to employees arising out of and in the course of employment or out of performing duties related to an employer’s business typically are excluded under CGL policies.

Another key distinction between EPL and CGL policies is the manner in which claims are covered. CGL policies cover occurrences that cause damage during the period of coverage. To illustrate, a claim made today regarding damage to property that occurred years ago will be covered under the CGL policy in effect at the time even though the claim is brought years later. However, EPL policies cover only claims that the employer knew about or should have known about and that the employer reported to the carrier during the coverage period.

Directors & Officers Liability (D&O) policies, however, do offer some coverage for EPL. One of the key advantages to purchasing this separate from your D&O policy is that these employment related claims do not effect the limits provided under your D&O policy. This could be very helpful in the event of a claim.

EPL policies vary from carrier to carrier. Most EPL policies provide “duty to defend” coverage, requiring the carrier to defend against claims brought under the policy. Under this coverage, the carrier’s duty to defend typically arises regardless of whether the deductible, or amount of the employer’s out-of-pocket expenses, has been met. With the duty to defend, however, comes the carrier’s right to choose the counsel who will defend the company against the claim.

Most EPL policies also contain a provision that is sometimes referred to as a “hammer” clause. Hammer clauses give the carrier the right to recommend settlement. If an employer does not follow the recommendation, the carrier’s liability is limited to the amount recommended. Some hammer clauses allow the carrier to force the case into arbitration, mediation or other alternative dispute resolution mechanisms.

EPL policies also share some of these features or characteristics. Your Rhodes & Williams broker will help you in choosing the form that best suits your needs.

• Covered Insured – All EPL policies cover claims against the company (and sometimes its subsidiaries) and its directors, officers and employees. However, some policies exclude coverage for part-time, temporary, leased and seasonal employees and cover only claims against full-time employees. In addition, many policies exclude independent contractors from coverage.
• Claims Covered – All EPL policies cover civil judicial proceedings and virtually all cover arbitration and administrative proceedings. However, some policies also cover claims before litigation or the actual filing of a grievance or charge. For example, some policies cover a written demand for monetary or non-monetary relief, threat of legal action or a request to toll the statute of limitations.
• Person Bringing Covered Claim – All EPL policies cover claims brought by current full-time employees. Some policies also cover part-time, temporary and seasonal employees. Some go even further and offer coverage for applicants for employment and former employees (full-time, part-time, temporary and seasonal).
• Wrongful Acts Covered – Almost every EPL policy covers claims of wrongful termination of employment, workplace harassment and discrimination. Many offer a more comprehensive list of covered acts, which may include the new employment torts, including negligent hiring/supervision/evaluations, invasion of privacy, defamation and intentional infliction of emotional distress.

Companies should obtain a “special handling” endorsement offered by many insurance companies. Such an endorsement allows companies to choose their own defense counsel. Without such an endorsement, all control over the defense of employment claims rests with the insurer under the typical “duty to defend” EPL policy.

Most EPL policies cover only those claims first asserted during the policy period and reported to the insurer pursuant to the policy’s “notice” requirements. Timely notice is a condition precedent to coverage, and failure to comply with the policy’s notice requirement may jeopardize coverage altogether. Thus, it is important that companies with EPL policies report employment claims that they know about or should know about during the coverage period.