Employment Practices Liability Insurance (“EPLI”) and “fidelity” bonds are often important riders to an employer’s standard insurance policies.  EPLI provides coverage and defense for certain types of employment litigation and fidelity bonds cover certain employee theft losses.  But even when EPLI and fidelity bond coverages have been purchased, an employer can complicate or even lose this protection if it fails to properly tender a claim to the insurer.

What is proper tender?  It is taking the policy-prescribed steps to secure coverage.  If you are sued or have a charge filed against the Company or if you have uncovered a suspected theft, the best next step is to work with your legal counsel to protect the Company’s rights while perfecting tender.  That means not compromising the claim or letting it default or making assurances to the employee.  It means immediately reviewing the notice and tender provisions of the policy and then making a timely, documented submission to the insurer that tenders the matter for coverage under the terms of the policy.  Then, while waiting for a coverage determination, you need to defend a litigated claim or preserve evidence of a theft so that the insurer cannot take the position that you have compromised its ability to undertake defense or pursue a loss and, thereby, deny coverage based on the insured’s acts during this “tender” period.  Specific situations can present real complexities during this “tender” time.

Once the coverage determination is made, you will receive a “reservation of rights” letter describing (often in complex terms) the scope and limitation of coverage.  If there is coverage for a litigated matter, counsel will be assigned to represent the Company.  Under Minnesota law, the insurer will have certain defense obligations and settlement obligations even when there are covered and uncovered claims.  Uncovered claims may necessitate keeping your corporate counsel active in review and defense of the litigation.  For an employee theft claim, a claims agent will be assigned to work with you as you file a “Proof of Loss.”  If coverage is denied, the “reservation of rights” letter will provide the reasons in writing for review, analysis, and possible appeal under the terms of the policy.

Takeaway:  Having EPLI or fidelity bond insurance coverage is one thing, preserving your rights to indemnification and defense of loss coverage through proper tender is another.  Careful and quick work (and good legal counsel) is necessary to perfect a tender and obtain the protection you purchased.