As an employer, while your employment practices liability insurance (EPLI) can give you peace of mind, it is certainly only one aspect of evaluating your risk management and costs associated with owning a business.
An EPLI policy offers insurance protection against claims and lawsuits that are brought against a business, its officers or directors, or its employees and managers. (Such claims include but are not limited to: wrongful termination, discrimination, breach of contract, sexual harassment claims, among others.) EPLI operates on a claims-made basis, meaning that the incident triggering the claim and the timing of making the claim itself to the insurance company must fall within the coverage period.
According to Janette Levey Frisch, author of The Emplawyerologist, the five most common gaps or pitfalls are:
1. Policy Limits and Deductibles: Like any insurance policy, EPLI will have liability limits and a deductible.
2. EPLI Does Not Cover All Employment-Related Claims and Losses: EPLI usually does not cover matters including but not limited to:
· fines or penalties
· stock benefits
· future compensation or benefits of a hired employee
· reinstated or promoted pursuant to a settlement, verdict, ruling, or other resolution of a claim
· wage and hour claims
· severance pay claims
· personal injury
· criminal acts
· intentional acts.
Even with EPLI, employers still have exposure to many types of employment-related issues not covered under EPLI.
3. Defense and Settlement-RelatedIssues: Understand the difference between your EPLI policy that imposes a “duty to defend” on the insurance carrier as opposed to only a reimbursement and “duty to indemnify.” With a duty to defend, the employer generally does not have the ability to select its own defense counsel and may not even have a say in that selection. Most often, the insurance carrier chooses the defense counsel from its list of approved employment defense firms.
That often means that you will not know your defense counsel, and your defense counsel will not be familiar with your company, its operations, or its employees. In a reimbursement policy, you will often be allowed to choose your own counsel, but you may need to obtain your insurance carrier’s consent before incurring defense expenses. This limitation can often have the same or similar effect as a policy with a duty to defend.
4. Application and Reporting Issues: Failure to disclose pertinent facts or timely report either claims or incidents that could give rise to a claim can result in the insurance carrier attempting to disclaim liability and coverage.
5. Underwriting Requirements and Standards: Just as you may have to provide certain information or take certain precautions to obtain other insurance coverage, you will have to do the same when applying for EPLI coverage. Underwriters may seek information about your staff turnover, prior claims, and your employment practices. Having appropriate practices in place, however, will put you in a much better position to obtain good EPLI coverage.
So is EPLI coverage worth it? As with any other coverage, it can be but it does not absolve you, the employer, from being compliant with all the labor practices in California.
Be proactive and stay compliant – get the advice of an employment attorney at Chauvel & Glatt.