Do you know if your organization is paying liability insurance that covers employment claims? Many organizations have no idea that they are insured against employment claims, so they end up paying legal bills at the same time they are paying insurance premiums that could cover the cost of defense. Could this be you?
When we receive a call to represent an employer in a litigation matter, one of the first questions we ask is whether the organization has liability insurance that covers the claim. Such insurance, often called Employment Practices Liability Insurance (EPLI), helps organizations manage risk. In exchange for paying insurance premiums and individual claim deductibles, the insurance carrier provides coverage for damages and the cost of attorneys’ fees for defending the organization.
Over the past year, we encountered several instances where an organization was unaware that it had EPLI. When an organization subsequently discovers it has coverage, the insurance carrier may refuse to extend representation due to the untimely reporting of the claim or it may agree to extend representation but only under certain conditions that are not as favorable to the organization.
For example, at the beginning of one engagement, a new client informed us that it did not have EPLI, but it later discovered at the time of policy renewal that it had EPLI. At that point, the client notified the insurance carrier of the claim, and the carrier extended representation but only from the point of the report forward. Thus, our client was responsible for legal fees incurred prior to the claim report.
Another new client originally without knowledge of its EPLI coverage reported a claim to the insurance carrier many months after the claim arose. As a condition of extending representation, the carrier required the client to use an attorney from the carrier’s panel of prearranged counsel rather than counsel selected by the client. As a result, with our help, the client had to work diligently to bring the newly appointed counsel up to speed to handle the on-going matter.
As you can see, the failure to timely notify an EPLI carrier of an employment claim can hurt an organization’s bottom line and cost the organization time and energy to duplicate the work it has already put forth with its preferred counsel. As a best practice, each organization should be aware of whether it has EPLI coverage so it can timely report any claim. Further, to the extent an organization has a preference of litigation counsel, the organization should contact their broker or insurance carrier to request an endorsement on its policy that provides for representation by its preferred counsel.