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Thelen Reid Brown Raysman & Steiner LLP
More
than 42,000 lawsuits were filed in federal court in 1998
alleging civil rights violations of some kind, according
to recent Justice Department statistics. Of these, more
than 24,000 were employment discrimination lawsuits against
private employers. These numbers are expected to be even
higher in the future.
With
these numbers on the rise, it is little wonder that many
companies are turning to Employment Practices Liability
Insurance ("EPLI") to manage this risk. Many companies
are not familiar with the key features of EPLI policies
or how they differ from other generally available commercial
insurance policies. Below is an overview of the key features
of an EPLI policy and some questions companies may wish
to ask in choosing an EPLI policy suitable to their needs.
Policy Overview
As
its name implies, Employment Practices Liability Insurance
insures against liability arising from employment practices.
Comprehensive General Liability ("CGL") policies,
unlike EPLI policies, provide only general liability coverage,
insuring against claims for bodily injury and property damage
-- that is, tangible damages. Moreover, intentional acts,
a commonly claimed in employment suits, and bodily injury
to employees arising out of and in the course of employment
or out of performing duties related to an employer's business
typically are excluded under CGL policies.
Another
key distinction between EPLI and CGL policies is the manner
in which claims are covered. CGL policies cover occurrences
that cause damage during the period of coverage. To illustrate,
a claim made today regarding damage to property that occurred
years ago will be covered under the CGL policy in effect
at the time even though the claim is brought years later.
However, EPLI policies cover only claims that the employer
knew about or should have known about and that the employer
reported to the carrier during the coverage period.
EPLI
policies vary from carrier to carrier. Most EPLI policies
provide "duty to defend" coverage, requiring the
carrier to defend against claims brought under the policy.
Under this coverage, the carrier's duty to defend typically
arises regardless of whether the deductible, or amount of
the employer's out-of-pocket expenses, has been met. With
the duty to defend, however, comes the carrier's right to
choose the counsel who will defend the company against the
claim.
Most
EPLI policies also contain a provision that is sometimes
referred to as a "hammer" clause. Hammer clauses
give the carrier the right to recommend settlement. If an
employer does not follow the recommendation, the carrier's
liability is limited to the amount recommended. Some hammer
clauses allow the carrier to force the case into arbitration,
mediation or other alternative dispute resolution mechanisms.
EPLI
policies also share some of these features or characteristics:
1.
Covered Insured. All EPLI policies cover claims against
the company (and sometimes its subsidiaries) and its directors,
officers and employees. However, some policies exclude coverage
for part-time, temporary, leased and seasonal employees
and cover only claims against full-time employees. In addition,
many policies exclude independent contractors from coverage.
Employers should try to obtain the broadest coverage possible
so that part-time, temporary, leased and seasonal employees
and independent contractors also are covered.
2.
Claims Covered. All EPLI policies cover civil judicial
proceedings and virtually all cover arbitration and administrative
proceedings (i. e. , proceedings before the Equal Employment
Opportunity Commission or state equivalent). However, some
policies also cover claims before litigation or the actual
filing of a grievance or charge. For example, some policies
cover a written demand for monetary or non-monetary relief,
threat of legal action or a request to toll the statute
of limitations. Depending on the size of the company and
its financial resources, a company may wish to opt for an
EPLI policy that is expansive in the kinds of claims covered.
3.
Person Bringing Covered Claim. All EPLI policies cover
claims brought by current full-time employees. Some policies
also current part-time, temporary and seasonal employees.
Some go even further and offer coverage for applicants for
employment and former employees (full-time, part-time, temporary
and seasonal). Still others afford greater coverage and
cover claims brought by the EEOC "on behalf of"
employees. Employers should examine their workforces and
determine which type of policy will best meet their needs.
4.
Wrongful Acts Covered. Almost every EPLI policy covers
claims of wrongful termination of employment, workplace
harassment and discrimination. Many offer a more comprehensive
list of covered acts, which may include the new employment
torts, including negligent hiring/supervision/evaluations,
invasion of privacy, defamation and intentional infliction
of emotional distress. Employers should compare EPLI policies
for the most comprehensive policy in terms of the wrongful
acts covered.
5.
Practices or Acts Excluded. Most EPLI policies exclude
claims based on, arising from or in way related to the Fair
Labor Standards Acts (with the possible exception of Equal
Pay Act provisions), the National Labor Relations Act, the
Worker Adjustment and Retraining Notification Act (WARN),
and claims arising out of downsizing, layoffs, workforce
restructurings, plant closures or strikes; the Consolidated
Omnibus Budget Reconciliation Act of 1985 (COBRA); the Employee
Retirement Income Security Act (ERISA); the Occupational
Safety and Health Act (OSHA); and the costs associated with
providing "reasonable accommodation" under the
Americans with Disabilities Act (ADA) to disabled employees
or costs associated with modifying facilities to make them
accessible to the disabled. These are considered to be risks
that companies are better able to control. Most EPLI policies
also contain exclusions for criminal acts, fraud, illegal
profit or advantage, purposeful violation of law, wrongful
acts committed with actual knowledge of their wrongful nature
or with intent to cause damage and other egregious conduct.
Whichever
EPLI policy an employer chooses, if an employer has a strong
preference for a particular defense counsel, it should have
that counsel named in an endorsement to the policy. Otherwise,
the carrier will select counsel from a list of panel counsel.
Counsel selected from the list not only may be less experienced
than the employer's regular labor counsel but also may be
unfamiliar with the history of the organization, the corporate
culture of the company, the specifics surrounding the company's
cases, or the issues and considerations that are of paramount
importance to the company.
Three Tips for Buying an EPLI Policy
1.
Choose an Established Carrier. Evaluate EPLI carriers
based on their experience and financial strength. A low
premium will not be the bargain it seemed if the carrier
leaves the marketplace. It is better to go with an established
carrier that is committed to the EPLI product for the long
term. Bottom line: You should get considerable background
information about any carrier and the underwriter writing
the policy whenever possible. If the carrier is new to EPLI,
it might be a good idea to consider another.
2.
Buyer Beware. An investigation into and analysis of
your EPLI needs is absolutely necessary before any purchase.
Do not expect underwriters to see every eventuality for
you. Make sure that you can live with the claims definition
and exclusions in the policy. Seek advice early if you are
unsure what your needs are.
3.
Be able to choose your own lawyer and settle when you want.
Choosing your own lawyer may or may not be important
to you. If it is important, make sure that you address it
with the carrier up front. If your attorney is experienced
in employment law, the insurer should readily accommodate
your request. If not, you may be forced to use panel counsel.
Before accepting the insurer's panel counsel, you should
find out whether the panel attorneys limit their practice
to employment law, which is a very specialized area. You
also will want to maintain some control over the settlement
of claims because settling too quickly can cause complaints
to multiply in the workplace.
Conclusion
A
good EPLI policy can supplement other liability policies,
providing additional coverage for discrimination, sexual
harassment and wrongful discharge. Most EPLI policies list
the employment practices, wrongful acts, violations or injuries
that are covered by the policy. Companies should pay careful
attention to this language in the policy.
Companies
should choose an EPLI policy that covers discrimination,
sexual harassment, retaliation and other intentional acts.
Companies also should seek a policy that covers claims for
breach of express and implied employment contracts. They
also should ensure that written demands and EEOC charges
are claims that are included within the policy.
Companies
should obtain a "special handling" endorsement
offered by many insurance companies. Such an endorsement
allows companies to choose their own defense counsel. Without
such an endorsement, all control over the defense of employment
claims rests with the insurer under the typical "duty
to defend" EPLI policy.
Most
EPLI policies cover only those claims first asserted during
the policy period and reported to the insurer pursuant to
the policy's "notice" requirements. Timely notice
is a condition precedent to coverage, and failure to comply
with the policy's notice requirement may jeopardize coverage
altogether. Thus, it is important that companies with EPLI
policies report employment claims that they know about or
should know about during the coverage period.
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For more information about the issues covered in this report, please contact Linda S. Husar in our Los Angeles office at 213-576-8017 or at lshusar@thelen.com or contact your Thelen attorney. For more information about Thelen's Construction and Government Contracts Department, click here.
©2000 Thelen Reid Brown Raysman & Steiner LLP
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