EPL Coverage Is a Business Necessity but Be Educated About Purchase

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Kelly Holden, Dressman Benzinger LaVelle psc
February 2017

As the amount of employment-related litigation continues to increase, companies are looking for ways to protect their business and assets.  One option for protection is the purchase of Employment Practices Liability (“EPL”) insurance.  Some organizations elect to purchase a separate EPL policy, while in other cases EPL coverage may be a rider to a general liability policy.  Generally, the purchase of the insurance is a good plan for employers and a wise investment.

In some cases, organizations agree to purchase the insurance and are not advised of how the policy will be utilized when a claim is filed.  When making the decision to invest in EPL coverage, businesses are advised to question the types of employment claims that are covered by the policy.  Typically covered are claims filed with the Equal Employment Opportunity Commission, state civil rights agencies, and lawsuits for discrimination filed in state or federal court.  Not covered are claims for breach of contract, breach of non-compete agreements, and wage and hour claims.

Organizations also should know the policy’s deductible or retention.  These can range from $2,500 to $250,000.  The amount of the retention or deductible may make the policy virtually worthless depending on the size of the employer and the number of claims the employer typically sees during the coverage period.

The choice of defense counsel is also a concern on such policies.  Unless it is specifically negotiated at the purchase of the policy, the insurance company may mandate use of a lawyer or law firm hired by or on retainer with the insurance company.  The insurer may refuse to allow the insured’s counsel to handle defense of the case.  In this scenario, the organization is required to pay a law firm hired by the insurance company up to the amount of its deductible before the insurance company will pay any legal fees or other expenses to that firm.  If an organization has corporate and employment counsel that it prefers to use for defense of its claims, this must be negotiated with the insurance agent prior to purchase of the policy.  Quite often, the insurance company will hire out of town counsel and require organizations to pay travel expenses in addition to other legal fees.

Lastly, companies should inquire as to their right to settle claims.  Some policies give the exclusive right to settle claims to the insurance company and may attempt to exclude the insured company from settlement discussions or even mediation.

Although EPL insurance coverage can make good business sense, organizations are advised to inquire with their insurance company about the detailed provisions of such policies and retain some control over their own affairs.  Being well-informed is a key to the right insurance coverage.