Employment practices liability insurance ("EPLI") policies are designed to provide insurance coverage for typical employment litigation. Traditional business insurance policies, such as general liability, directors and officers liability policies and ERISA riders do not cover the majority of employment claims. These policies typically have exclusions, such as for claims which arise from "intentional actions" or "in the course of employment." Such exclusions generally pose an insurmountable barrier to obtaining coverage for employment matters.
Typical EPLI Coverages
While EPLI policies had a rocky start about 20 years ago, more recently they have been offered by reputable carriers who provide valuable coverage. EPLI policies usually cover claims for wrongful termination, employment discrimination, sexual, racial and other types of employment-related harassment and retaliation. Policies sometimes cover other matters, such as wage and hour claims. But EPLI policies usually do not provide coverage for deliberate violations of employment laws and union-management issues.
Typical EPLI Exclusions
Because EPLI policies are written for a national market, the policies typically do not provide coverage for state-specific claims, such as claims under the Michigan Whistleblowers' Act, and claims of height, weight and marital discrimination under the Elliott-Larsen Civil Rights Act. Sometimes the insurers will cover such additional areas, but a special endorsement or rider is necessary.
Standard EPLI Policy Provisions
The amount of coverage provided by an EPLI policy varies widely, often from $250,000 to $10 million or more. Deductibles and premiums also vary widely. Typically, policies provide coverage for costs of settlements and jury awards, attorney fees and other costs of defending claims. Some policies do not allow the insured to choose the attorneys who will defend it. In such cases, the insurance company assigns an attorney to handle the case on an insured's behalf, regardless of whether the insured has a valued relationship with a particular law firm or attorney.
Employers Should Choose Broad Coverage
Employers who choose to obtain EPLI insurance should choose an EPLI policy which provides coverage for claims made by all types of employees: full-time and part-time, seasonal and temporary employees. It is also advisable to obtain coverage for claims which may be made by leased employees and staff from temporary service agencies. Although one of the aims of using temporary staff and leased employees is to reduce employment obligations and liabilities, the fact is that some claims from temporary staff and leased employees have been successful against employers. To address this potential liability, an employer sometimes can be added to the EPLI coverage of the temporary services agency or the leasing company as "an additional insured," so that coverage for temporary service and leased employees is provided either at a modest charge or at no charge at all. If that is not done, it is important to obtain coverage for temporary staff and leased employees on your own EPLI policy.
Complying with EPLI Requirements
Much like the reviews made by insurers providing fire coverage for a building, EPLI carriers often have audits and reviews and impose specific requirements prior to providing coverage. For example, an EPLI carrier may review the employee handbook, job application and other forms and may require that employers have certain policies, keep certain records and follow certain procedures, so that potential claims under the EPLI policies are minimized.
EPLI policies can provide valuable protection in the litigation-prone arena of employment practices. When considering EPLI coverage, it is important to review the policies. Key items are:
- the dollar limits of coverage;
- whether defense and liability coverages are provided, and not only to the company, but also to its officers and supervisors;
- the types of claims covered; and
- whether defense counsel can be your own law firm or whether a law firm will be assigned to you.
If, after reading this article, you still have questions about expanded coverage or any other corporate law matter, visit our Corporate Counsel section for legal professionals.