Employment Practices Liability Insurance

Employment Practices Liability Insurance (EPL) emerged in 1991 in response to the passage of the Civil Rights Act of 1991. This law allowed punitive damages to be awarded in employment discrimination cases and provided for jury trials in cases of discrimination (juries have historically been much more sympathetic to employees than they are to employers). These heightened exposures paved the way for an increase in employee civil rights lawsuits and created the need for an insurance product to protect against claims alleging offenses such as discrimination, wrongful termination and sexual harassment.

The EPL policy provides coverage to the directors, officers, employees and the corporate entity of an Insured. Traditionally, coverage was provided only for the aforementioned discrimination, wrongful termination and sexual harassment. Coverage has been significantly expanded to provide varying levels of coverage for other common law allegations such as failure to supervise and negligent hiring. Given that the plaintiff’s bar has steadily increased its focus on employment issues year after year, it is important that the EPL policy be written with terms and conditions as broad as possible to position the policy to respond favorably to widening allegations.

Further, as mentioned above, punitive damages are a significant exposure in employment related litigation. It is therefore essential that the EPL policy cover punitive damages, although the degree to which punitive damages are insurable varies from state to state. This issue should be discussed with your legal counsel. Additionally, carriers also offer Third Party EPL coverage, which provides protection in the event that a suit alleging sexual harassment or discrimination is brought by a person other than an employee (i.e. customers, clients or other non-employees with whom your company interacts).

Another issue which has become prominent over the past several years is the so called “wage and hour” law litigation being brought by or on behalf of employees who allege that they were not paid properly for overtime or given adequate breaks pursuant to state and/or federal “wage and hour laws”. Some insurance carriers rushed in to provide the coverage under their EPL policies, only to retract the coverage after experiencing dire loss results. The coverage is still available by several carriers on a sub-limited basis to respond to at least some of the defense costs associated with these suits.

Courtesy of RT Specialty