With ever-increasing employment litigation and sometimes shocking jury awards, employers should familiarize themselves with employment practices liability (“EPL”) insurance, a product of relatively recent vintage.

Unlike other types of insurance that sometimes provide limited coverage for employment-type claims, such as workers compensation, comprehensive general liability (“CGL”), directors and officers (“D&O”) and professional liability insurance, EPL typically insures employers against liability for harassment, discrimination, and wrongful termination claims brought by employees.  More and more employers are recognizing the importance of insuring against these type of employment claims which, due to the unpredictability of juries and the impact of fee-shifting statutes, provide a substantially greater risk to employers than many other types of claims.  Purchasing the right EPL policy is a crucial component of an employer’s armament.

What Are The Advantages of EPL Coverage?

The primary benefit of an EPL policy is that it protects employers against claims of discrimination, harassment and retaliation.  Some EPL policies are more comprehensive and also cover employment torts such as invasion of privacy, defamation and infliction of emotional distress.  Nearly all EPL policies exclude wage and hour and employment benefits claims as well as claims brought under the Occupational Safety and Health Act of 1970 and those alleging failure to accommodate under the Americans With Disabilities Act.

Most EPL policies cover the employer as well as its employees, officers and directors.  EPL policies generally cover litigation, arbitration and administrative proceedings such as claims filed with the EEOC and state civil rights agencies.  Some policies even cover prelitigation demands.  Employers analyzing EPL policies should check these provisions.

What Are The Primary Components of an EPL Policy?

As previously noted, EPL typically insures against claims not otherwise covered by other insurance products.  Nearly all EPL policies are “claims-made” policies, which means that they cover claims taking place during the coverage period.  Similarly, most policies provide “duty to defend” coverage, which requires the insurance company to defend against claims brought under the policy, even if all the claims in the complaint are not substantively covered by the policy.  In light of the costly nature of employment litigation, the duty to defend is a great benefit to employers.  As part of the duty to defend, many policies provide that the carrier will select legal counsel.  However, companies should negotiate the right to choose counsel, especially if they regularly work with employment attorneys familiar with their business and personnel policies.  Defense costs are generally within the policy limits, meaning the amount of coverage is reduced by these costs.  Finally, all EPL policies address the rights of the employer and insurance company with regard to settlement.  While some grant the employer the opportunity to approve or reject settlement, others protect the insurance company through “hammer clauses” by capping the carrier’s exposure in the event that an employer unreasonably refuses to settle against the carrier’s advice.

In sum, while EPL coverage can be a valuable component of an employer’s arsenal, there are many issues to consider.  For example, employers should consider the persons and type of claims covered, whether the policy permits the insured to select counsel, and whether the policy gives the insured the right to play a role in or decide whether to settle.  Considering these issues will enable employers to make the most of any EPL insurance purchase.