Employment Practices Liability Insurance, known as EPLI, provides coverage to employers against claims made by employees alleging discrimination (e.g., on sex, race, age or disability), wrongful termination, harassment and other employment-related issues. Workers’ compensation, issues involving unemployment insurance and ERISA are excluded.
EPLI is not meant to replace sound employment practices. In fact, most insurers will not insure a company unless it has some basic employment practices in place. Employee Handbooks and post-incident investigation practices are some of the significant items that insurance companies expect an employer to have when applying for an EPLI policy. EPLI costs are dependent upon the size of the organization, the type of business and other risk factors.
EPLI can bridge any gaps that might exist for claims brought by current or former employees. As there are no standard EPLI policies, each policy and proposal must be evaluated on its own merits, though similarities have become common over time. Here are some issues that should be considered:
1. Claims Made Policy. Most liability insurance policies (general liability, automobile, workers’ compensation) pay for events that occur during the policy period. For example, an auto insurance policy will pay for an accident that occurs while the policy is in force. EPLI policies, however, pay for lawsuits filed during the policy period; the wrongful act could have occurred years before. Claims-made policies respond only when a suit is filed, or when a strong threat of a suit exists.
Claims made policy: Pays based on the date of the lawsuit.
Occurrence policy: Pays based on the date of the accident or occurrence.
The downside of a claims made policy comes if the policy is canceled. For example: An EPLI policy is put in force January 1, 2014, and is renewed in 2015 and 2016. In 2017, however, the practice decides to end the coverage because the premium has increased. Six months later, a letter from an attorney arrives announcing a lawsuit for discrimination in medical leave that occurred in 2017. There is no coverage. Although the policy was in force at the time of the alleged discrimination, the policy was not in force when the suit was filed. The solution to this problem is the extended reporting period found in most policies.
2. Extended Reporting Period / Tail Issues. Claims made policies only provide protection for lawsuits and actions brought during the policy period. In the event that coverage is replaced or cancelled, protection may be desired for events that took place prior to expiration / cancellation but for which no claim has yet been filed. This coverage is called a “tail” or “extended reporting period” (ERP).
3. Limit of Coverage. Most EPLI policies have a limit per occurrence and a policy limit of coverage for the total of all claims, called an aggregate limit. As claims are paid, you use up the limit of coverage available for future claims.
4. Defense Within Limit. Most EPLI policies include the cost of defending a claim (e.g., attorneys’ fees) within the policy limit of liability. The defense costs of a claim can use up your insurance. When looking for the correct limit of coverage, consider the cost of the legal system in your calculations.
5. Definition of Wrongful Employment Practice. Each EPLI policy will contain a definition of the wrongful acts that are included in the policy. Here are some acts to be considered when reviewing coverage:
- Wage & hour
- FMLA violations
- Social Media
- Wrongful discharge
- Sexual harassment, gender and sexual orientation claims
- Hostile workplace environment
If an act is outside the definition of wrongful act, there is no coverage.
6. Definition of Harassment. Some policies narrowly define this coverage as “sexual harassment.” A better and broader definition is “workplace harassment” or “harassment including sexual harassment.”
7. Special Insurance Company Provisions. Some employment practices liability insurance policies include special features. Usually these are measures to prevent losses. Insurers may provide access to a “hotline,” allowing free access to experts to discuss employment actions and situations. The purpose is to give the practice access to information and opinions on issues that could lead to a claim.
Another feature offered by some insurers is a reduction in the deductible applied to a claim if the practice called an attorney prior to the termination of an employee. Others allow you to call your own attorney. Should a claim result, the deductible may be reduced by half.
8. Retroactive Date / Prior Acts Coverage. We discussed above the idea that claims made insurance policies respond to claims brought during the policy period. Many policies include a date after which a claim must occur in order for the policy to respond — a retroactive date. When changing insurance companies, it is vital to understand the new policy retroactive date. The use of tail coverage may be necessary if the retroactive date is not sufficiently in the past.
Having total peace of mind in today’s litigious society may not be possible, but having adequate insurance to cover employment related claims should be at the top of any employer’s to-do list. Talk with your broker now rather than later, and once EPLI coverage is in hand, annually have the policy reviewed and updated to ensure that it encompasses the practice’s current risk needs.