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Employment Practices Liability Insurance: Get the Policy You Need


Employment Practices Liability Insurance Get the Policy You NeedThere is a wide range of employment practices-related issues that an employer must address – from policies and procedures that help prevent allegations of discrimination (racial, gender, disability), sexual harassment, retaliation and wrongful termination, among others. But when a claim does arise alleging some type of violation of federal or state employment law, Employment Practices Liability Insurance (EPLI) is designed to respond. In recent years, increasingly more businesses, including small to midsized firms, are realizing the importance of this insurance coverage as the regulatory environment becomes tighter and more suits are being filed. Without this coverage, businesses face a gap in coverage, as standard liability insurance policies typically do not provide coverage for employment-related risks. When purchasing an EPLI policy, several factors need to be evaluated so your business gets the policy you need.

First, be aware that policies vary significantly when it comes to price and breadth of coverage. They key is to work with a professional to secure the EPLI coverage that best fits your business. That means negotiating to build a policy that offers comprehensive coverage and minimizes gaps in coverage. With employment practice law rapidly evolving (we have covered several cases over the last few years that can impact the type of coverage you have), it’s essential that your policy have a broad enough definition of what is covered. For instance, does the policy definition for wrongful employment practices include claims alleging negligent hiring, training, and supervision? Does the policy cover punitive damages?

Another issue to review is the rights you have to retain counsel under the policy. Some policies designate that the insurer has the right to designate counsel of its own choosing while other EPL policies require that the insured consent to financial settlements that are approved by the insurer or forfeit their coverage.

Also, look carefully at the type of losses covered in a policy. The majority of policies provide coverage of back pay, lost benefits, and legal fees. However, front pay, fines, penalties, punitive damages, and cost of accommodations and travel may not be covered. Some insurers provide punitive damages coverage within their regular policy forms. Others cover punitive damages with a sublimit while some offer punitive damages coverage, subject to regular policy limits.

Prior acts coverage should be evaluated so that coverage is available for claims that may have originated from incidents taking place prior to the inception date of your first EPLI policy. Ideally, the policy can be written with no retroactive date (known as “full” prior acts coverage), but if a retroactive date is included, it should be at least 5 years prior to the inception date of the policy. Prior acts coverage is also imperative when you switch carriers. In this case, prior acts coverage can be accomplished if the retroactive date on the new carrier’s policy coincides with the inception date of the first EPLI policy purchased by the insured (although ideally, the replacement policy can be written with no retroactive date).

Third-party employment practices liability should also be examined. This refers to claims made by non-employees, usually customers, who allege that an employee engaged in wrongful conduct, typically sexual harassment or discrimination. Without a policy endorsement for third-party claims, an EPLI policy does not cover the exposure. Third-party liability coverage is generally available by endorsement for additional premium and should be seriously considered by firms that are vulnerable to these exposures.

Axis Insurance Services specializes in EPLI insurance and can help you with your coverage. Just give us a call at (877) 787-5258.

Sources: INC Magazine, IRMI

 

 

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Blogged on: July 15, 2015 by Mike Smith
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