Elements of an EPLI Policy

Elements of an EPLI policy

In today’s litigious society, businesses are susceptible to a host of employment-related lawsuits, including claims of discrimination, sexual harassment, wrongful termination, and invasion of privacy. Such claims stem from employer monitoring of voicemail, email, office computer systems, and the Internet, as well as daily interactions between staff and management. The increase in these liability claims has fueled the need for a different type of insurance coverage—employment practices liability insurance (EPLI).

Policy Issues

EPLI policies generally cover suits brought against employers, directors, officers, and supervising employees. Coverage usually includes expenses relating to legal defense, indemnity for liability, and administrative hearings or actions.

EPLI coverage may exclude suits involving employees hired under nontraditional employment arrangements, such as independent contractors, consultants, and volunteers. It may also exclude claims involving employment-related defamation, misrepresentation or fraud, occupational health- and safety-related issues, and unfair labor practices.

Coverage Terms

Business owners who purchase EPLI insurance should focus particular attention on policy language that will provide the appropriate coverage for their businesses. Policy terms that may cause confusion include the following:

• Defined vs. Undefined. The use of specific definitions of coverage may provide a threshold for claims to be tested; in other words, coverage will only be granted for a claim if it meets the express definition contained in the policy. Conversely, undefined terms written ambiguously in the policy may cover all claims, unless otherwise excluded.
• “Consent” vs. “Confer.” When choosing legal representation, the right of “consent” grants an insured business veto power or authority to influence the insurance carrier’s selection of counsel. Likewise, the right to “confer” allows a business owner to participate in the selection process without the authority to make the final decision.

Direction for Loss Prevention

An EPLI policy tailored to the company’s needs combined with a proactive employment practices program may provide the best road map to guide businesses safely through employee claims. Companies may consider the following practices to help protect against liability:

• Designate a human resources manager who has knowledge of current employment laws, and give him or her the authority to facilitate a forum for employees to discuss potentially liable issues in a safe environment.
• Establish and maintain a current human resources policy manual that includes written guidelines for grievance procedures, discrimination issues, sexual harassment issues, and termination.
• Require managers to obtain training for hiring, conducting performance evaluations, and terminating employees.
• Conduct employment practices audits.

Cause for Consideration

As with all insurance, the decision to employ EPLI insurance should be made with careful consideration. Some EPLI coverage is only offered in certain states; therefore, companies with operating facilities in several states should ensure their policy provides coverage for all facilities. In addition, because the risk of potential EPLI claims may be directly associated with the size of a company, smaller or family-owned companies employing few non-related workers may believe they face minimal exposure to liability. Before deciding whether your company may or may not be immune to the risks of employment-related lawsuits, you may want to consider speaking with one of our qualified insurance professionals. We will help you evaluate your employment practices liability needs.

Risk Manager Online Vol. 15, No. 5 Copyright © 2007 Liberty Publishing, Inc.