Employment Practice Liability Insurance

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How it works?

Employment Practices Liability Insurance (EPLI) insures against liability arising from employment practices. EPLI 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. EPLI policies vary from carrier to carrier. Most EPLI 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, comes the carrier's right to choose the counsel who will defend the company against the claim.

Most EPLI policies also contain a provision that is sometimes referred to as a 'hammer' clause. Hammer clause 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 clause allow the carrier to force the case into arbitration, mediation, or other alternative dispute resolution mechanisms.

EPLI policies also share some of these features or characteristics:

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1. Covered Insurance

All EPLI policies cover claims against the company (and sometimes its subsidiaries) and its directors, officers, and employees. However, some policies can include exclusions such as only covering claims against full-time employees. In addition, many policies exclude independent contractors from coverage. Employers should try to obtain the broadest coverage possible so that part-time, temporary, leased, and seasonal employees and independent contractors are also covered within their policy.

2. Claims Covered

All EPLI policies cover civil judicial proceedings and virtually all cover arbitration and administrative proceedings (i. e. , proceedings before the Equal Employment Opportunity Commission or state equivalent). 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. Depending on the size of the company and its financial resources, a company may wish to opt for an EPLI policy that is expansive in the kinds of claims covered.

3. Person Bringing Covered Claim

All EPLI policies cover claims brought by current full-time employees. Some policies also cover claims by current part-time, temporary, or seasonal employees. Some even go further and offer coverage for applicants for employment and former employees (full-time, part-time, temporary, or seasonal). Still others afford greater coverage and cover claims brought on by the EEOC ‘on behalf of’ employees. Employers should examine their workforces to determine which type of policy will best meet their needs.

4. Wrongful Acts Covered

Almost every EPLI 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. Employers should compare EPLI policies for the most comprehensive policy in terms of the wrongful acts covered.

5. Practices or Acts Excluded

Most EPLI policies exclude claims based on, arising from or in way related to the Fair Labor Standards Acts (with the possible exception of Equal Pay Act provisions), the National Labor Relations Act, the Worker Adjustment and Retraining Notification Act (WARN), and claims arising out of downsizing, layoffs, workforce restructurings, plant closures or strikes; the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA); the Employee Retirement Income Security Act (ERISA); the Occupational Safety and Health Act (OSHA); and the costs associated with providing 'reasonable accommodation' under the Americans with Disabilities Act (ADA) to disabled employees or costs associated with modifying facilities to make them accessible to the disabled. These are considered to be risks that companies are better able to control. Most EPLI policies also contain exclusions for criminal acts, fraud, illegal profit or advantage, purposeful violation of law, wrongful acts committed with actual knowledge of their wrongful nature or with intent to cause damage and other egregious conduct.

Things to consider when buying an EPLI Policy?

1. Choose an Established Carrier

Evaluate EPLI carriers based on their experience and financial strength. A low premium will not be the bargain it seemed if the carrier leaves the marketplace. It is better to go with an established carrier that is committed to the EPLI product for the long term. Bottom line: You should get considerable background information about any carrier and the underwriter writing the policy whenever possible. If the carrier is new to EPLI, it might be a good idea to consider another.

2. Buyer Beware

An investigation into and analysis of your EPLI needs is absolutely necessary before any purchase. Do not expect underwriters to see every eventuality for you. Make sure that you can live with the claims definition and exclusions in the policy. Seek advice early if you are unsure what your needs are.

3. Be able to choose your own lawyer and settle when you want.

Choosing your own lawyer may or may not be important to you. If it is important, make sure that you address it with the carrier up front. If your attorney is experienced in employment law, the insurer should readily accommodate your request. If not, you may be forced to use panel counsel. Before accepting the insurer's panel counsel, you should find out whether the panel attorneys limit their practice to employment law, which is a very specialized area. You also will want to maintain some control over the settlement of claims because settling too quickly can cause complaints to multiply in the workplace.