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Questions You Should Be Asking About Employment Practices Liability (EPL) Insurance

By Heidi Lawson, CPCU

Every firm has employees, as well as individuals that it has “failed” to hire, or promote, or recognize and reward to the extent that the individuals believes befitting. This is what makes it difficult to completely avoid employment disputes and possible litigation. Even if the firm and its employees don’t take action, it is possible that the Equal Employment Opportunity Commission or other enforcement agency may do so on its own recognizance. In fact, 6 out of 10 employers faced an employee lawsuit between 2006 and 2011, and that trend is expected to continue. Also, almost 75% of all litigation against companies involves employment disputes.

Employment Practices Liability (EPL) insurance protects a Company and its directors, officers and employees for claims alleging employment-related wrongdoing. In certain respects, EPL coverage is similar to other management liability coverages such as Directors and Officers and Fiduciary Liability insurance in that it is typically written on a claims-made basis, covering claims first made against the employer and its employees during the policy period. Some but not all EPL policies are also claims-reported, requiring notice to the insurer during the same period for coverage to apply. While many companies assume that all EPL coverage is generally the same and become solely focused on the premium, the truth is that the quality and scope of EPL coverage varies significantly from policy to policy. For example, customers and clients can also bring claims alleging harassment or discrimination. Although such claims would not typically be covered as an employment claim under an EPL policy, a number of insurers are willing to include coverage for claims by third parties, either expressly in the policy form or added by endorsement.

In addition to considering how much EPL insurance costs, below is a list of questions you should be asking about the quality of the EPL coverage you are considering.

  1. Can I hire the lawyer I want to hire and control the defense?
  2. Are certain executive positions or board of director positions excluded?
  3. Is there a contract exclusion?
  4. Is there coverage for harassment of third parties? (e.g., vendors and others that employees may come in contact with)
  5. How broad is the definition of claim? What kinds of claims are not covered?
  6. When do I need to notify the insurer of a claim?
  7. Is there coverage for theft of an employee’s personal information?
  8. Is there coverage for government investigations? How is coverage triggered?
  9. How does my coverage compare with other companies in my industry?
  10. Are my definitions broad enough to cover all employees in my company and its subsidiaries?

It should also be noted that even where the insureds have the right and obligation to defend their own claims, there may be a panel counsel requirement – giving the carrier control or influence over the selection of defense counsel - as well as a voice in the settlement of any claim. A company’s preference on control of defense as well as selection of defense counsel should be discussed before coverage is placed and may well play a strong role in carrier selection.

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