Employment Practices Liability Insurance

Summary of Coverage
The policy is designed to address liabilities that come out of the employment relationship. Workers' compensation, issues involving unemployment insurance and ERISA are excluded.
Coverage is generally included for harassment, discrimination, wrongful discharge, failure to hire, and failure to promote.

Coverage Considerations
As there are no standard EPLI policies, each policy and proposal must be evaluated on its own merits. Here are some issues that should be considered:

Claims-Made Policy
Claims-Made Coverage Trigger
Most liability insurance policies (general liability, automobile, workers' compensation) pay for events that occur during the policy period. For example, an auto insurance policy will pay for an accident that occurs while the policy is in force.

EPLI policies, however, pay for lawsuits filed during the policy period; the wrongful act could have occurred years before. Claims-made policies respond only when a suit is filed, or when a strong threat of a suit exists.

Claims-made policy: Pays based on the date of the lawsuit.

Occurrence policy: Pays based on the date of the accident or occurrence.

The downside of a claims-made policy comes if the policy is canceled. Example: An EPLI policy is put in force January 1, 2005, and is renewed in 2006 and 2007. In 2008, however, the organization decides to end the coverage, because the premium has increased. Six months later, a letter from an attorney arrives announcing a lawsuit for discrimination in hiring that occurred in 2007.

No coverage.

Although the policy was in force at the time of the alleged discrimination, the policy was not in force when the suit was filed. The solution to this problem is the extended reporting period found in most policies (see the next paragraph).

Extended Reporting Period/Tail Issues
Claims-made policies only provide protection for lawsuits and actions brought during the policy period. In the event that coverage is replaced or cancelled, protection may be desired for events that took place prior to expiration/cancellation but for which no claim has yet been filed. This coverage is called a "tail" or "extended reporting period" (ERP). Here are some issues to consider:See the separate section of this book describing claims-made policy issues.

Limit of Coverage
Most EPLI policies have a limit per occurrence and a policy limit of coverage for the total of all claims, called an aggregate limit. As claims are paid, you use up the limit of coverage available for future claims.

Defense within Limit
Most EPLI policies include the cost of defending a claim (attorneys' fees, etc.) within the policy limit of liability. The defense costs of a claim can use up your insurance. When looking for the correct limit of coverage, consider the cost of the legal system in your calculations.

Definition of Wrongful Employment Practice
Each EPLI policy will contain a definition of the wrongful acts that are included in the policy.

Here are some acts to be considered when reviewing coverage:

  • Discrimination
  • Negligent Hiring
  • Wrongful Discharge, Evaluation, Discipline, Promotion
  • Employment-Related Personal Injury (Libel or Slander)
  • Sexual Harassment
  • Workplace Harassment
  • Failure to Hire
  • Workplace Tort – Wrongful Termination, Retention, etc.

  • If an act is outside the definition of wrongful act, there is no coverage.

    Definition of Harassment
    Some policies narrowly define this coverage as "sexual harassment." A better (broader) definition is “workplace harassment” or “harassment including sexual harassment.”

    Special Insurance Company Provisions
    Some employment practices liability insurance policies include special features. Usually these are measures to prevent losses. Insurers may provide access to a "hotline," allowing free access to experts to discuss employment actions and situations. The purpose is to give the bank access to information and opinions on issues that could lead to a claim.

    Another feature offered by some insurers is a reduction in the deductible applied to a claim if the bank called an attorney prior to the termination of an employee. Some
    insurers provide a hotline. Others allow you to call your own attorney. Should a claim result, the deductible is reduced by half.

    Retroactive Date / Prior Acts Coverage We discussed above the idea that claims-made insurance policies respond to claims brought during the policy period. Many policies include a date after which a claim must occur in order for the policy to respond—a retroactive date. When changing insurance companies, it is vital to understand the new policy retroactive date. The use of a "Tail" may be necessary if the retroactive date is not sufficiently in the past.

    When buying coverage for the first time find out how “prior-acts” will be handled. Some insurers exclude all past occurrences. Some will only exclude “pending and prior litigation.” In other words, if you knew that the incident was going to result in a lawsuit there is no coverage.

    Third Party Coverage
    Some insurers offer coverage that includes allegations of harassment or discrimination to non-employee, third parties. For example, a customer alleges that a clerk refused service due to her race or ethnicity.

    Review the definitions of third party and the wrongful acts that are included in the extra coverage.