In a recent edition of Coverage Counselor my colleague, Keven Drummond Eiber, discussed the interplay between Employment Practices Liability Insurance (“EPLI”) and a medical malpractice policy. The article outlined the details of professional liability coverage in a real life situation where a former employee alleged sexual harassment against her supervisor, a doctor, and professional liability claims because the former employee was also a patient of the doctor. In that case, because of specific language in the competing policies, the medical malpractice insurer agreed to defend and indemnify even though the crux of the suit involved claims against the employer that arose out of the employment relationship.
This leads to a number of questions. What is EPLI? What types of claims are covered? What types of claims are not covered? Assuming you have a covered claim, what damages and costs are covered?
EPLI is designed to protect companies from losses associated with employment claims brought by employees and former employees. While policies vary in terms of what is covered, typically EPLI covers employers and its employees against claims of discrimination based upon protected class status, i.e., race, sex, age, disability, gender, national origin, etc.; harassment, retaliation, and wrongful termination based upon protected class status; and defamation, invasion of privacy, false imprisonment, negligent supervision and other common law claims arising out of the employment relationship.
In most instances, EPLI does not cover minimum wage and overtime claims brought under the Fair Labor Standards Act (“FLSA.”). This is too bad because wage and hour claims, and in particular class action lawsuits, are on the rise and carry with them the potential for liquidated damages and attorneys’ fees. Other claims that are typically excluded are statutory claims brought under the Occupational Safety and Health Act (“OSHA”), the Employee Retirement Income and Security Act (“ERISA”), the National Labor Relations Act (“NLRA”), the Worker Adjustment and Retraining Notification Act (“WARN”), and state workers’ compensation laws.
What if an employer wants to sue a former employee for misappropriation of trade secrets or violating post-employment restrictions such as a confidentiality or non-compete agreement. Would that typically be covered by EPLI? The answer is most probably not, unless there is specific language in the policy regarding coverage.
So you have a covered claim, subject to the limits of the coverage, what does EPLI cover? Once the deductible is exhausted, EPLI will cover damages arising out of the insured’s employment practices, including judgments, settlements, pre- and post-judgment interest, attorneys’ fees, and defense costs and expenses. Importantly, attorneys’ fees and defense costs are most likely included within the limits of the coverage. What this means is that every dollar spent in defending a claim erodes the amount available to resolve the claim.
From an employer’s standpoint, what does all of this mean? Given the litigious environment employers operate under, purchasing EPLI coverage is worth considering. Surprisingly, a Chubb 2013 Private Company Survey revealed that only 30 percent of 450 U.S. for profit companies purchased EPLI. The cost of coverage depends on, among other things, the type of business, the number of employees, the history of prior claims, and the types of claims you want to protect against. If your company is considering purchasing an EPLI policy or even if you have already done so, it is advisable to have coverage counsel assist in evaluating the pros and cons of the various insurance products on the market so that you can make an informed decision on the coverage that is right for your business.