The upsurge in sexual harassment complaints and gender-based pay discrimination has many employers understandably concerned about their exposure. More and more employers are looking to protect themselves against employment-related claims using Employment Practices Liability (EPL) insurance. The attorney fees alone to defend a claim by an employee can be staggering. EPL coverage can certainly provide some peace of mind - but there are things to watch out for.
- Excluded Claims. EPL insurance covers most types of discrimination, including racial and gender-based harassment, and retaliation (which is critical - most claims now feature an allegation of retaliation for reporting bad behavior). But not all policies cover contract claims, which can be problematic. Also, wage claims—which can be a significant exposure for employers with lots of overtime-eligible workers—are generally excluded. However, many insurers are now commonly offering "defense-only" coverage for wage claims by endorsement.
- Strict Reporting Requirements. Understand that EPL coverage is written on a "claims-made" or "claims-made-and-reported" basis, which means that if an employment-related claim is made the employer will have a limited time in which to report it to the insurer, or risk losing coverage. "Claim" is usually defined broadly. This means that the company will need to establish an air-tight system for making sure that even idle complaints get reported up the chain to someone who can evaluate whether a "claim" has been made.
- Excluded Damages. Some policies broadly exclude punitive, "exemplary," or "multiplied" damages, and exclude non-monetary relief. These kinds of restrictions can be problematic in states where such damages are commonly sought. It is possible to negotiate narrower restrictions or to find policies with different language.
- Third-Party Harassment. In some industries harassment by customers or vendors is a hazard - but many policies do not cover claims arising from that kind of conduct. This can lead to frustration when the business assumed that it had coverage, but ends up bare.
- Panel Counsel. Many companies will expect to use their preferred employment counsel to defend against a claim. But many policies allow the insurer to choose counsel, who will generally be from a "panel" of lawyers with close ties to the insurance company. This can lead to questions about divided loyalties if the insurer and the company disagree about how to handle, or whether to settle a claim. Further, "panel" counsel will generally not be familiar with the company or its industry. It may be possible to get the insurer to pre-approve your regular employment counsel when you purchase the policy.
- Incentives to Settle. Similarly, some policies contain a tough "hammer clause" saying that if the policyholder does not agree to a settlement recommended by the insurance company, the policyholder will be responsible for paying a large percentage of any verdict or future settlement. Companies that want to defend themselves may then be in conflict with the insurer about settlement. It may be possible to negotiate this language or find better language with other carriers.
EPL insurance can provide valuable protection to an employer. But making sure that the employer is getting what it thinks it is buying, and that the coverage matches the risks that the employer faces, can require taking a close look at these and other nuances of the coverage.