Everything your organization needs to know about EPLI
Monday, March 16, 2015
Employers are subject to a plethora of employment-related litigation under state and federal statutes and common law claims. Employment Practices Liability Insurance (EPLI) can protect employers from these claims, but premiums, deductibles and coverages vary with the terms and conditions of each policy.
This article will review some of the factors that employers should consider in evaluating EPLI products.
Policies covering employment practices may come bundled with other insurance products or as stand-alone policies. Bundling EPLI claims with other coverages may help to reduce the overall cost of insurance, or they may come as an endorsement or a rider to a directors and officers liability policy (D&O), errors and omissions liability policy (E&O) or umbrella policy.
"All risk" policies cover everything except specific exclusions, while "named perils" policies enumerate a long list of covered claims. The long list of covered claims in a named perils policy may appear impressive, but if a particular claim does not appear on the list of "covered" claims, it may not be covered by the policy.
Policies can vary as to which persons or entities are covered. In addition to the business entity, some policies cover individual partners, shareholders, directors, officers, current employees and former employees.
Check to see whether the definition of "employee" includes part-time, seasonal, temporary or even leased employees and how the policy treats volunteers and "independent contractors." Also, check to see how the policy covers employees of acquired organizations or entities.
Some policies may also cover acts by third parties against the employer's employees, which is a beneficial feature. These provisions protect an employer from acts by customers or employees of vendors and may be subject to a separate coverage limit.
Definition of a claim
Policies can cover "claims" or "occurrences." A claims policy covers an event once the "claim" is made, and an occurrence policy covers the event when it occurs. Timing is obviously critical in determining whether a policy covers a particular event.
Policies may define a claim to include receipt of oral notice, a written demand letter, administrative charge, request to arbitrate or lawsuit. The definition of "claim" will affect the employer's ability to resolve the claim at an early stage before being required to report it to the carrier. However, not notifying the carrier in a timely manner may mean that a claim is not covered.
EPLI policies typically cover claims of discrimination and harassment on the basis of legally protected categories. But check to see if they cover retaliation, whistle-blowing, wrongful termination or refusal to hire or promote, breach of an employment contract, negligent hiring, supervision or retention, libel, slander, invasion of privacy or other torts and false arrest.
Intentional acts and those occurring outside the scope of employment are usually not covered.
Check to see what damages are covered by the policy. Polices can cover back pay, front pay, compensatory damages, lost benefits and pre- or post-judgment interest. But check to make sure the policy covers mental anguish, pain and suffering, humiliation, emotional distress or other similar damages.
Make sure the policy covers appeals as well as the initial proceeding and any bonds that may be necessary. Policies may not cover fines or penalties, since public policy may forbid coverage of such damages.
Consider the exclusions, or what the policy does not cover.
Check to see if any of the following are excluded from coverage: criminal conduct, personal or bodily injury, collective or class action lawsuits, contract claims, downsizings, plant closings, or reorganizations, EEOC or state administrative charges, ERISA/COBRA/HIPAA or other employee benefits claims, pay disputes or wage hour claims, intentional acts, unfair labor practice charges, other administrative charges, liquidated and punitive damages, ADA accommodations, punitive damages, strikes, and workers' compensation claims.
Also consider whether there is a "prior knowledge" exclusion.
Costs, deductibles and coverage limits
Costs, deductibles, co-insurance and coverage limits can be compared among policies. The key to comparing policies, however, is to compare the cost of policies with similar deductibles and coverage limits.
The deductible or retention is the amount of money the insured must pay before the insurance company begins to pay. Deductibles vary greatly and can be from $5,000 to $500,000 — or more. Higher deductibles reduce premium costs and give an insured more control to resolve small claims.
Coverage limits can vary greatly. The appropriate coverage limit will depend upon the nature of the business, number of employees, number of locations and jurisdictions, existing human resources infrastructure and other factors.
Evaluate how and by whom the claim will be defended. Check to see if, and the extent to which, defense costs will be covered. Check to see if defense costs reduce coverage amount.
Check who will choose defense counsel under the policy. See if there is an option to pay more to select your own counsel and the extent to which the insured can have input into the strategic litigation decisions.
Check on whether, and to what extent, the insured has input into settlement decisions. If an insured does not want to settle, check to see how it may affect liabilities for the case going forward.
As an inducement to get employers to buy a policy, carriers may offer free or low-cost value-added services or products such as telephone hotlines for advice, employment practices audits, sample forms, training sessions, newsletters or bulletins.
Carriers may offer a premium reduction for a favorable experience rating or for certain preventive actions, such as implementing no-harassment policies and training, producing an employee handbook or submitting to an employment practices audit.
Some policies require the insured to submit to binding arbitration of coverage disputes. Others make arbitration available at the election of the insured. Opinions differ concerning the relative advantages and disadvantages of arbitration of coverage disputes and each employer should decide this issue from its own perspective.
While there can be no doubt that EPLI can be an important tool in the risk management arsenal, each employer has to sort through the mix of EPLI products and make its own decision as to whether a particular product is appropriate for its situation.
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