With the increase in employment law cases over the last several years, employers are looking for ways to protect its business and assets. This has led to a dramatic increase in employers purchasing Employment Practices Liability (“EPL”) insurance. Some employers purchase a separate policy or the 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, employers agree to purchase the insurance and are not advised of how the policy will be utilized when a claim is filed. Employers should question what type of employment claims are covered by the policy. Usually, claims filed with the Equal Employment Opportunity Commission, state civil rights agencies as well as lawsuits filed in state or federal court for discrimination will be covered. What is not covered are claims for breach of contract, non-compete agreements and wage and hour claims.
Employers should also know what the deductible or retention on the policy is. 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 amount of claims an employer typically sees.
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 a lawyer or law firm hired by or on retainer with the insurance company and refuse to the let the company’s counsel handle the defense of the case. Therefore, the company will be 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 the lawyer it hired. If a company has corporate and employment counsel that it prefers to defend its claims, the company must negotiate this with the insurance agent prior to purchase of the policy. Quite often, the insurance company will hire out of town counsel and require the company to pay travel expenses in addition to other legal fees.
Lastly, companies should inquire as to its 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 mediations.
Although EPL insurance can make good business sense, companies need to inquire about the provisions of the policies and retain some control over its own affairs. Being well informed is a key to the right insurance coverage.
