Get the Most from Your Employment Practices Liability Insurance

Managing a business is tough. You worry about employee satisfaction, efficiency, and following employment laws. What if you have to let someone go? What if one of your current or former employees sues you?

Employment Practices Liability Insurance, or EPLI, is designed to help. It protects employers from claims by employees. But using it isn’t always straightforward. This guide will help you make the most of your EPLI when you really need it.

What is Employment Practice Liability Insurance? 

Think of it, most simply, as lawsuit insurance. Employment practice liability insurance, or EPLI, protects businesses against litigation from current and former employees.

This kind of litigation is called an EPL claim. The EPL stands for employment practice liability and covers claims concerning certain violations against employees.

What is an EPL Claim? 

An EPL claim is an action by a current or former employee alleging unfair treatment or legal violations by the employer. The employee can be anyone from senior management to any individual on the junior associate level.

Typical EPL claims include:

• Race and age discrimination
• Sexual harassment
• Gender-based termination
• Wrongful termination
• Breach of employment contract
• Failure to employ or promote
• Wrongful discipline
• Deprivation of career opportunity
• Reducing pay for reporting to government agencies
• Denying legally permitted leave (for maternity, paternity, disability, etc.)

EPL insurance coverage usually will reimburse you for costs related to:

• Attorneys’ fees and expenses
• Settlement costs
• Court/agency awards

It’s important to note that some employment-related claims may not qualify for EPL coverage. For example, breach of contract disputes are typically not covered by EPLI.

Other claims unlikely to be covered by insurance include:

• Punitive damages (against your company)
• Worker’s compensation
• Criminal acts (after you or someone in your company is proven guilty)
• Contractual liability or breach of contract
• Violation of state or federal labor laws
• Strikes, lockouts, or other labor disputes

Know Your Policy 

I am giving a general overview of what most EPLI policies can, or should, cover. However, you should familiarize yourself with your policy’s specific terms.

Not all policies cover all possible EPL claims. In fact, the insurer usually decides whether a claim is covered by their policy. And every policy is different. For example: Some EPL policies limit how much they’ll chip in for defense costs. Other companies may go all in on your defense.  Still, some might not cover defense costs at all.

Consult your policy, or talk to your broker to make sure you have the right coverage for your type of business.

Mistakes That Can Jeopardize EPLI Coverage 

Whether by design or accumulated caution, insurance policies are tricky documents. While you’re covered in general, specific circumstances can complicate matters and leave you exposed.

Normal due diligence is not always enough when turning a disgruntled employee’s claim over to your EPLI.  When and how you file for coverage matters a lot.

Here are common missteps to avoid:

The “Made and Reported Claims” Time Trap 

EPLI policies often have a tricky “claims made and reported” requirement. This means the policy only covers your company’s claim if:

1. The claim was first made against you during the policy period, and
2. You reported the claim to the insurer during the same policy period.

Coverage usually gets denied if both conditions are not met.

For example: An employee files a complaint requesting only a right-to-sue letter. Insurers consider this a “claim” that must be reported while the policy is in effect. However, you might not see this as a “claim” since no response is required. Months later, the employee files the lawsuit, but it’s after your policy has expired or been renewed.

In this example, your EPLI will most likely deny coverage. After all, the claim was neither made nor reported during the same policy period.

Best Practice: Report anything that even looks like a potential “claim” to your EPL insurer right away. This includes:

• attorney letters,
• complaints to state or federal agencies,
• and lawsuits.

If you are too prudent, and wait until an actual lawsuit hits, you could fall into this time trap.

Pre-Insurance Claim Costs are Not Covered 

Your EPLI will not cover any legal or settlement costs you incur before you get them involved. The provision contained in every EPLI policy goes something like this:

“The insured will incur no liability or expense without our express written consent.”

If you rack up costs on a matter before filing your insurance claim, those are your costs. Your EPLI coverage does not kick in until after you’ve tendered a claim.

For example: A former employee has threatened to bring a discrimination case against your company. You consult your attorney. On their advice, you decide to wait until an actual lawsuit lands on your desk. Finally, it does. You go back to your lawyer to float the option of a quiet settlement. Your attorney recommends you file a claim with your EPLI.

Your EPL insurance will not cover any of your attorney costs before you file your claim. This includes settlements. Once your EPLI gets involved, your legal costs are covered. However, your insurer will probably select its own attorney to represent your interests in the matter.

Best Practice: Don’t use your EPLI as a backup or last resort. If the EPL claim brought by your employee falls into a covered category, get your insurer involved.

Tender Your Claim Properly 

Some EPLI policies have specific, detailed instructions for reporting claims. These “where and how” details are often buried in the policy, so read it carefully.

Generally, the easiest way to report a claim is to:

• Send your insurance broker a copy of whatever documents you received (a complaint, a lawsuit, etc.) and
• Include a written request asking the broker to report the claim under all policies that might apply.

Sometimes the simplest approach is best. Just notify your broker and let them handle the rest. Insurance brokers are experienced in properly reporting claims to each insurer they work with. It’s part of their daily job.

Getting the Most From Your EPLI 

Your company is paying for this coverage, and you probably hope you’ll never need it. Still, if that need arises, you’ll want to get the most out of your EPLI. Here are six key points to consider:

One: Keep Your Carrier on Notice 

Whether or not you file a claim, notify your EPLI carrier of any potential dispute or issue that could “reasonably lead to a claim.” Reach out to your carrier even if you’re not sure a particular matter will be covered. By putting the carrier on notice, you reserve your company’s right to use the coverage. It does not mean you’ve actually filed a claim yet. Situations requiring notice to your EPLI can include:

• A letter from your employee’s attorney,
• A notice from the Equal Employment Opportunity Commission (EEOC) that your company has been charged with discrimination, or
• Any notice of a complaint filed by an employee to any state or federal agency.

Many policies allow you to file a claim after the effective dates as long as you give notice during the effective dates. If you’re unsure whether to report a potential claim, consult an experienced insurance attorney for guidance.

Two: Get a Second Opinion After a Claim Denial

Let’s say your company moves forward and files an EPLI claim — but your carrier denies it. Get a second opinion.

Insurance policies are rife with exclusions, carve-outs, and opaque language. An insurance attorney can sort out the carrier’s obligations to you by the policy and applicable law. Your carrier may still have a duty to defend you against employee claims, even if they are not required to pay any damages.

Three: Watch Your Company’s Budget 

Like other insurance policies, EPLI coverage comes with deductibles or self-insured retentions. Remember also: Your company must pay from its coffers for legal fees or settlements before the policy kicks in.

Unlike other types of insurance, EPLI deductibles can be a lot higher. They can range from $25,000 to $50,000, or even more, depending on the size of the company. The amount of the deductible/retention might influence whether to file a claim or seek resolution another way. Filing a claim could cause your EPLI carrier to raise your premiums, or not renew your policy.

Four: Understand What Your EPLI Covers — And Doesn’t Cover 

This guide gives an overview of what most EPLI policies cover, such as harassment, discrimination, negligence, and retaliation. You should know exactly what your company’s policy will cover, or more importantly, will not cover.

Most policies exclude wage claim disputes over salary, overtime, bonuses, and commissions. Keep funds in reserve to cover your company’s deductibles, retention, and non-insured, or non-filed claims.

Five: Consider the Counsel 

Most EPLI policies require that you use a lawyer(s) retained by the carrier when defending against claims. Simply put: Your EPLI picks the defense lawyer for your company’s case.

This counsel represents both sides and cannot appear to favor either your company or the employee. Therefore, it’s wise to keep your corporate attorney(s) involved in EPLI matters to guard your company’s interests.

Six: Regularly Review EPLI Policy Terms 

Your company should regularly review and re-evaluate EPLI policy terms with the insurance broker. After all, your business will not want — and may be unable to afford — unwelcome surprises after filing a claim. Common policy terms and issues to review include:

• Policy limits: Is there enough coverage to account for the number of employees in the company?
• Settlement Details: Will your EPLI carrier contribute to settlements, and if so, under what conditions?
• Legal Counsel: Does the policy ever allow you to select a lawyer? Or does the carrier have the exclusive right to choose counsel? Consider negotiating some flexibility so your company can choose its counsel.

What if Your EPLI Claim is Denied? 

Employment Practices Liability Insurance is supposed to protect your business. However, claims can and do get denied. When this happens, you still have options:

Review the denial 

Carefully read the denial letter. It should explain the reasons and cite policy language or exclusions. Verify that the cited language matches your policy copy. Note any deadlines for challenging the denial, as missing them could mean losing your chance to pursue the claim.

Delegate 

Consult an insurance law attorney to go over and analyze the stated basis for your claim denial. An attorney can draft a formal response if the denial was based on misunderstandings, incorrect information, or misapplied policy language.

An attorney can also negotiate on your behalf for a potential early settlement.

Know Your Resolution Options 

If the dispute can’t be resolved informally, you need a new course. You may pursue mediation, arbitration, or even a bad faith lawsuit against your EPLI. Each option involves neutral third parties who facilitate negotiations and settlements inside or outside of court.

Don’t Delay 

Act promptly when responding to a denied claim, as delays can affect your ability to challenge it. Always be proactive in protecting your rights and your business’s finances.

We Can Help With Your EPLI Matters 

Employment Practices Liability Insurance can provide important protection. Unfortunately, when promised protection gets undermined by a loophole or unfair detail, you and your business are even more exposed. If your EPLI carrier fails to pay a claim, or won’t take necessary action, we’re here. Our experienced insurance attorneys understand your rights. They can challenge claim denials and help protect your business. Call 303-688-0944 for an initial consultation.