In today’s blog post, Miller Friel attorney Miles Karson addresses key Employment Practices Liability insurance (“EPLI”) issues. These include considerations that corporate policyholders should keep in mind when purchasing or making claims under EPLI insurance policies. On the front end, ensuring adequate coverage for EPLI claims starts when coverage is placed. Considerations there include defense cost carve outs in certain exclusions, and the inclusion of Duty to Advance defense cost provisions. On the back end, a claim must be carefully analyzed to maximize the full extent of coverage.
Please watch the video to learn more.
We have included a transcript of the video below:
Insurance Coverage for Employment Practices Liability Claims
An important part of any private or public company’s management liability insurance program is Employment Practices Liability insurance. But there are a number of things that a company needs to keep in mind with their EPL coverage. First, let’s just start with the basics – notice. EPL policies are typically notice of claim policies. Meaning that if a claim is made during the policy period, you have to provide notice of the claim during the policy period.
Many EPL policies are claims made and reported policies, meaning that if a claim is made against a policyholder, and that claim could be not just a lawsuit but it could be a demand letter. It could be a letter from either an employee, a former employee or a former employee’s lawyer accusing the company of wrongful employment practices. Whether it’s wrongful discharge or something else, and under a claims made and reported policy that claim, that demand letter must be reported, noticed to the insurer as soon as possible. And certainly during the policy period.
This would be in contrast to maybe an occurrence policy, like your commercial or general liability policy, where even if a claim is made after the policy period, you can potentially get coverage under a prior policy if the occurrence was committed during the policy period.
When placing your EPL coverage, you want to ensure that there are what we refer to as carve outs in exclusions for defense costs. Specifically, the number one thing I look for is that there’s a carve out for defense costs in any breach of contract exclusion. EPL policies typically include an exclusion for breach of contract. Why is it important to have a carve out for defense costs? Because a typical employment claim is breach of an employment contract.
Believe it or not I’ve seen exclusions in EPL policies that don’t have this carve out, and as a result, you’ll have an employment lawsuit for breach of an employment contract that you don’t get defense costs coverage for it, and you won’t have coverage for any settlement. By having a carve out for defense costs, you ensure that at a minimum, your defense costs will be covered in defending that claim.
In talking about defense costs, you want to ensure that your EPL policy has, at a minimum, a Duty to Advance Defense Cost, if not a Duty to Defend, rather than a Duty to Reimburse. A Duty to Advance Defense Cost provision has a number of benefits. One, a Duty to Advance, many courts interpret it as the same as a Duty to Defend. That’s beneficial because under those circumstances, a mixed claim, where you have some covered claims and uncovered claims, the insurer is required to defend the entire lawsuit.
It also places the onus on the insurer to seek reimbursement of any paid defense costs, rather than getting to advance only those defense costs that it feels are covered. Similarly, the reason that Duty to Advance Defense Costs provision is beneficial, again in the mixed claim context, we’re seeing in the industry a lot of FLSA claims, Fair Labor Standards Act claims, particularly with a lot of companies hiring independent contractors, rather than employees. FLSA claims, a lot of times, are excluded from coverage in EPL policies. However, with a Duty to Advance Defense Cost provision, when those FLSA claims are mixed with other covered claims, the policyholder is able to get defense cost coverage for the claim in its entirety. We’ve had success on a number of occasions of getting full defense cost coverage for those very types of lawsuits.
The other thing to keep in mind when you’re dealing with a mixed employment claim is, “Is it really an EPL claim?” We’ve seen a number of EPL claims that combine both traditional Employment Practices Liability claims with a breach of an employment agreement, a breach of some type of other agreement, and fiduciary liability claims that allege that the company committed some type of wrongful act with respect to the plaintiff’s benefits, employee benefits, or stock options.
That takes things into the realm of a fiduciary liability claim, with coverage potentially under your fiduciary liability insurance. The reason this is a crucial distinction is that insurers many times view fiduciary liability claims far more seriously than employment claims. Therefore, they have higher reimbursements for the underlying defense counsel. They have higher budgets, so that you’re going to get a greater defense cost coverage under your fiduciary policy than you would under your employment practices policy.
Finally, something that sometimes gets overlooked with your EPL insurance is that it provides coverage for actual third-party claims, claims that aren’t brought by employees or former employees. If somebody is discriminated against, a customer alleges discrimination at the hands of one of your employees, that is potentially covered under your EPL policy, if you’ve purchased that insurance.
Here’s an example. We had a client that managed properties. They faced a number of lawsuits that they did not adequately provide handicap accessible entrance to their properties. That fell under, those claims fell under the third-party liability aspect of their EPL policies. That was something that they hadn’t considered until they brought it to us for us to review those claims. That’s something else to keep in mind anytime you’re faced with a discrimination type claims or third party claims arising out of an employee’s actions.