Many of you may have heard about Employment Practices Liability Insurance (EPLI). A good number of you may even have it. Nonetheless, its emergence into the insurance market and the employment law arena is relatively new, so it’s worth poking around to see what we can learn. What is EPLI? How does it work? Is it a viable, effective risk management tool for employers? Is it simply another gimmick that insurers use to divert money away from unsuspecting employers in order to line the insurance companies’ pockets (more)? Let’s start investigating after the jump…
What exactly is EPLI? The short answer: EPLI is a type of liability insurance covering claims of wrongful acts arising out of the employment relationship. While that answer wins points for brevity, it does not get most of you where you want to go. Does it cover all types of employment-related claims? Just how much coverage does it provide? If you have not heard about EPLI before now, why is that? Is it a new thing? How much can you expect to pay in premiums and how do insurance underwriters determine premiums and coverage? How do you determine EPLI’s effectiveness as a risk management tool without actually being sued? If you have or choose to purchase EPLI, what should you do to fill any remaining gaps? That’s a lot of questions! Let’s start by getting acquainted with some basics.
For those of you closet historians, let’s get a little bit of historical background. Before 1990, EPLI at best was available on a limited basis. The ’90’s saw skyrocketing numbers of employment law claims compared to other areas of litigation. Since the Federal Whistleblower Protection Act, the Americans with Disabilities Act, the Civil Rights Act of 1991 and the Family and Medical Leave Act all came into being in the ’90’s, that should not be a big surprise. The ’90’s also heralded record-breaking settlements and verdicts against employers, providing employees a strong incentive to bring such claims. I probably do not need to bore you with statistics for you to know (or at least guess) that the number of employment-related charges and lawsuits have steadily, if not exponentially, increased since the 1990’s. Insurers, like any other business saw a developing need and saw that it could capitalize on that need.
Prior to EPLI, options were essentially limited to seeking coverage under traditional, available insurance policies, such as commercial general liability (CGL), directors and officers liability (D&O), homeowners and workers’ compensation policies. Many of you may have done exactly that, and may be wondering why you cannot simply continue to do that and not bother with EPLI. The problem is that those types of policies either did not (and do not) provide such coverage, or specifically exclude such coverage, or are/were silent on employment practices liability, leaving insureds vulnerable to arguments from insurance carriers that such practices are not covered. In CGL policies, insurers argued that coverage did not include wrongful employment practices or intentional acts. In D&O policies, as the name implied it covered certain allegations against directors and officers, but not the corporate entity, and carriers also either argued against employment practices coverage, or began expressly excluding such coverage.
Initially, stand-alone EPLI policies only provided coverage for sexual harassment, discrimination and wrongful termination claims, and narrowly defined those terms. For example, sexual harassment usually only included quid pro quo harassment, but not claims arising out of hostile work environment. Wrongful termination coverage only included those terminations that violated a specific law or implied agreement. This coverage was not helpful to many employers. Today, EPLI typically covers employers, their executives, and in some cases their employees, against claims for discrimination, retaliation, harassment, defamation, invasion of privacy, negligent supervision, wrongful discharge, failure to promote and failure to hire. Note that FMLA, COBRA, ERISA, WARN and wage and hour issues are not listed here. That does not mean that EPLI never provides that coverage, just that they are typically excluded. Obviously, if you have or are contemplating purchasing EPLI, you will want to make sure you clearly understand what is and is not covered. Many policies will also specifically exclude intentional acts. Since discriminatory conduct will often fit the legal definition of intentional, you will want to make sure that the carve-out for intentional acts does not essentially vitiate coverage for discrimination claims.
As with other types of insurance there are of course, terms and limitations, such as “claims made” or “occurrence” basis, definitions of “covered claim”, “covered loss”, “insured” and whether the carrier has a duty to defend or merely a duty to reimburse. Also under many policies, the insured must report certain instances, that have the potential to turn into lawsuits or charges, such as an internal complaint or grievance. Most EPLI policies are “claims made” policies, meaning that the policy only covers claims asserted against you during the policy period. Therefore, (subject to “retroactive” or “continuity dates” included in the policy) if the facts giving rise to the claim happened during the policy period but you are sued after the policy expires (and you don’t renew or you switch carriers) the claim will not be covered under that policy. Typically a “claim” is defined to include a lawsuit or administrative proceeding (e.g. EEOC charge), written notice that an employee intends to hold you responsible for an employment practices violation or a demand for money damages. “Insured” usually includes full-time, part-time, temporary, leased or seasonal employees acting in such capacity, officers, directors or managers acting in such capacity,and, maybe, independent contractors (though some policies expressly exclude them). What is a covered “loss”? Typically “losses” include “damages” (a term policies often do not define) judgments, settlements, pre-judgment and post-judgment interest and defense costs. “Losses” typically do not include taxes, fines, penalties imposed by law, stock benefits, future compensation to an employee that is to be hired, promoted, or reinstated pursuant to a settlement claim, and may not include costs incurred to comply with an injunction or other non-monetary judgments or severance payments. (NOTE: As with all other policies, these policies also require deductibles, which tend to range from $25,000 on up.) Again, however, these definitions and examples represent the more typical inclusions but you still need to either read your policy or speak with your carrier to know what actually is and is not covered in your policy.
While EPLI, like any insurance coverage, can be an effective piece of your risk management puzzle — but used alone, it is not enough! Next week we will look a bit more at the gaps, how to fill them and what other pieces you need to complete your risk management puzzle. Toodaloo!
Join The Emplawyerologist next week as it introduces a new topic, Employment Practices Liability Insurance!
And now for a brief diversion/amusement from an otherwise dry topic:
Disclaimer: This post’s contents are for informational purposes only, are not legal advice and do not create an attorney-client relationship. Always consult with competent local employment counsel on any issues discussed here.
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