This is the fifth in our series of posts for general counsel and the HR professionals who support them. As we have noted previously, GCs are responsible for a lot but may not have time to become an expert on everything. These posts provide a brief take on employment law issues GCs are likely to encounter, such as HR technology, settling employment claims, employment enforcement agencies, and reductions in force.
Today's topic is Employment Practices Liability Insurance, or EPLI. EPLI provides coverage for employment-related claims and lawsuits brought by current, former, or prospective employees. Although EPLI can be expensive and does not completely eliminate the risk of liability for employment-related claims, it is well worth considering when an organization reviews its insurance coverage. Because of EPLI's connection to liability issues and litigation, GCs need to be involved in the decision to purchase EPLI and the choice of coverage and carrier. Here are some questions to ask:
Does EPLI coverage make sense for this organization? Consider the number of employees, staff turnover, the training level of managers and supervisors, the history and frequency of employee charges and complaints, the ability of the organization to fund defense costs and pay a large judgment, and the general risk tolerance of upper management. Weigh the expense of EPLI against the likelihood of an expensive employment action. The EEOC received nearly
90,000 charges of employment-related discrimination in fiscal year 2015. A single-plaintiff employment lawsuit can easily cost more than $100,000 to defend—regardless of outcome—and a loss can result in a judgment of several hundred thousand or more. Consider that more than half of all employment-related lawsuits are filed against small businesses, but
less than two percent of businesses with fewer than 50 employees purchase EPLI.
What type and level of coverage fits the organization's needs? Like all forms of liability insurance, EPLI premiums and coverage vary, and are related. One way to obtain lower premiums can be to opt for a higher deductible or self-insured retention. A retention transfers some of the risk of loss back to the policyholder. A deductible reduces the amount of insurance available, usually for any damages the policyholder pays.
What claims are covered? Not all EPLI policies cover all
employment claims. The insurance generally covers claims such as sexual harassment, discrimination, retaliation, wrongful termination, and violation of leave laws. Many EPLI policies contain exclusions for breach of contract, OSHA, FLSA, workers’ compensation, COBRA, WARN, and ERISA violations, among other exclusions. Generally, an EPLI policy offers reimbursement for the legal expenses of defending against claims or lawsuits, including payment of judgments or settlements, regardless of whether the company prevails. Although some EPLI policies cover punitive damages,
several states prohibit insurance for punitive damages. Be sure you understand which claims and expenses your policy covers and what coverage your jurisdiction allows.
Who has the right to select counsel? Many insurance carriers reserve the right to designate or approve defense counsel and direct the defense. If a policyholder wants the right to select counsel or weigh in on strategy, this needs to be negotiated at policy inception or renewal.
Another term to pay attention to is the consent, or “hammer” clause. It is common for EPLI policies to require the insurer to obtain the consent of the policyholder for costs of defense or settlement, but many policies also provide that, if the policyholder does not consent to a settlement the insurer supports, coverage is limited to the amount of the rejected settlement plus defense costs to the date of the withheld consent.
What are the notice requirements? GCs need to be familiar with what constitutes a claim under the EPLI policy, so they can identify when the insurance carrier must be notified of claims. Many EPLI policies are “claims-made” policies, meaning that claims must be reported to the insurance carrier within the policy period in which the claim or report is initially made. The policy may be triggered by a formal lawsuit or charges by a state or federal agency, or it may merely require a written demand, an agency investigation, or a formal internal complaint.
A failure to report an internal complaint that later turns into a charge or suit can constitute failure of notice in some policies—which may forfeit all coverage for the claim. GCs need to make sure that somebody understands what may trigger a policy claim and what the notice requirements are and is watching for incoming complaints that may trigger notice obligations.
Does your EPLI policy cover cybersecurity breaches? Some EPLI policies provide some coverage for
cybersecurity breaches. Carefully examine the terms and conditions of the EPLI policy to see if there are any exclusions or provisions relating to cybersecurity, and to assess whether provisions regarding claims of invasions of privacy, negligence, and misrepresentation may encompass liability resulting from cybersecurity breaches. Consider obtaining a cyber-specific policy.
