EMPLOYMENT PRACTICES LIABILITY INSURANCE (EPLI)
A Virtual Necessity in Today’s Business Environment
The recent “onslaught” of employee legal claims against employers has led to concerted efforts by employers and others to address the risk of employee claims and lawsuits. Those efforts are manifested in many ways, including insurance coverage through a product known as Employment Practices Liability Insurance, which is often referred to as EPLI.
What is Employment Practices Liability Insurance?
The Travelers Indemnity Company, a significant presence in the EPLI market, offers the following incomplete but useful definition: “Employment Practices Liability Insurance (EPLI) includes coverage for defense costs and damages related to various employment-related claims including allegations of Wrongful Termination, Discrimination, Workplace Harassment and Retaliation.”
History of EPLI Coverage
Only a few decades ago, insurance carriers seldom wrote EPLI coverage…and when they did it was often written as an adjunct to Directors and Officers liability (“D&O”) coverage. It has been suggested that the genesis for widespread use of stand-alone EPLI coverage was the highly publicized 1991 Clarence Thomas confirmation hearings, which put the general public’s focus on sexual harassment for the first time.
A substantial upsurge of employee claims has ensued in the subsequent decades. The increase in employee claims has many causes, including:
- Employees have become more aware of their rights to sue for such things as discrimination, harassment, retaliation, wrongful termination, etc.
- Expanding legal protection of gender identity categories.
- The employment law plaintiff’s bar has grown exponentially. Federal, state and local employment statutes often authorize an attorney’s fees award for the prevailing party…as compared to most laws that do not authorize an attorney’s fees award. This leads to many new lawyers taking up that specialty and experienced litigators adding employment claims to their arsenals…the more lawyers, the more lawsuits.
- Prevalence of federal, state and local human rights agencies which provide an arena for employees to assert claims without having to hire an attorney.
- The highly publicized “me too” movement.
The increase in employee claims has led to a growing list of companies that apply for EPLI coverage. This leads to decreasing premiums, which in turn leads to more applications. The substantially reduced premium costs available today make EPLI coverage a “no brainer” for many companies.
More recently, the Covid-19 business closings and subsequent re-openings, has led to what has been described as an “onslaught of new lawsuits.” This includes employee claims based on wrongful termination, discriminatory reductions in force, unsafe conditions upon returning to the workplace, retaliation and so forth.
Conditions that Carriers Attach to EPLI Applications
Not surprisingly, carriers will be hesitant to write affordable EPLI coverage unless the applicant takes reasonable steps to manage the risk of employee claims. More specifically, carriers will “urge” applicants to utilize some or all the protective measures listed below
- Maintain a Human Resources department or at least formally designate a Human Resources Officer to receive employee complaints and handle other front-line human resources issues.
- Use uniform employment applications.
- Hire third parties to conduct new hire investigations such as drug testing, motor vehicle violations searches, criminal conviction searches and credit history checks.
- Require multiple personal references from each candidate and follow up on those references.
- Adopt an employee manual which: (1) is to be distributed to all employees, (2) includes an “Employment at Will” statement, (3) requires each employee to acknowledge receipt of the manual in writing, and (4) is periodically reviewed by an experienced employment lawyer.
- Conduct Sexual Harassment Prevention Training and other human resources training for both management and rank and file employees.
EPLI Carriers also “encourage” applicants to include policies and procedures related to the following topics in their Employee Manuals:
- Sexual Harassment
- Other Workplace Harassment
- Reporting, Investigating and Resolving Employee Complaints
- Employee Discipline
- Discharge and Termination
- Performance Reviews
Failure to comply with this very good advice may result in rejected applications or unnecessarily high premiums.
A Few Caveats
EPLI coverage, like most forms of casualty insurance, may have coverage exclusions which could result in a disclaimer for certain claims. We urge you to consult with your broker to determine the extent of, and exclusions from, coverage and whether broader coverage may be obtained for a reasonable premium increase.
Also, most EPLI polices will be subject to a “retention” amount, which is effectively a deductible. An employer may consider a high retention policy which effectively makes the employer a self- insurer up to the retention amount.
A standard EPLI policy might not cover “third party claims.” So, to the extent your workers deal directly with the public, your company may also be at risk for harassment or discrimination claims from a customer, client, supplier, vendor, or other visitor. To protect your business from customer or client allegations, third-party EPLI may be the answer. Third-party EPLI should provide coverage for discrimination, harassment and similar claims involving at least one non-employee.
and the like.
Your broker can advise as to whether an EPLI policy provides third-party coverage, and can obtain a third-party endorsement, if it does not.
Like most types of casualty insurance, EPLI policies include stringent notice provisions…most of which require timely formal notice directly to the carrier. Under New York law, notice to the broker or agent may be insufficient unless the broker or agent in fact gives proper notice to the carrier on
the insured’s behalf. In today’s electronic world, carriers often enable insureds to file claims electronically, which may eliminate or exacerbate the risk of improper and/or untimely notice.
Finally, notice of a claim must be TIMELY. Many courts in New York State and elsewhere have upheld carrier disclaimers based on lack of timely notice. This means an insured should consider giving notice as soon as there is a hint of a potential claim…and not just wait for a lawyer’s demand letter or a court filing. Prompt notice must be weighed, however, against concerns that such early notices might give rise to increased premiums and/or non-renewal. Advice from a knowledgeable broker and/or attorney can be invaluable in those situations.
Richard H. Waxman, PC regularly advises clients to consider EPLI coverage and answers client questions about EPLI coverage. In doing so, we have developed the depth of experience that allows us to help you consider and qualify for the proper EPLI coverage for your business. This includes providing management training, preparing employee manuals, candidate application forms, and other documents which the carrier will want…if not require…you to have.
If you have any questions about EPLI coverage, or about any other facet of employment law, please contact Richard Waxman at:
Erwin Petschauer ARM, principal of Petschauer Insurance in Garden City NY, collaborated with Richard Waxman in the preparation of this Newsletter. You may reach out to Erwin at firstname.lastname@example.org with your questions about coverages, etc.
Please note that this Newsletter is limited to a brief overview of the topics covered. It is not intended to be relied upon, and must not be relied upon, as legal advice for any specific situation. Appropriate legal advice must always be based on numerous factors including without limit all the specific facts of the situation and the jurisdictions whose law may apply.
© Richard H. Waxman 2020
1 See Travelers website at: https://www.travelers.com/professional-liability-insurance/employment-practices
2 See the Independent Insurance Agents and Brokers website at: https://www.iamagazine.com/markets/read/2019/01/07/yesterday-today-and-tomorrow-tracing-the-history-of-epli
3 In the New York Metropolitan area alone, we have the United States Equal Employment Opportunity Commission; the New York State Division of Human Rights and the New York City Commission on Human Rights.
5 The 2018 NYS Sexual Harassment Prevention laws require NY employers to designate a specific person or persons to receive sexual harassment claims.
6 Federal and State laws, however, limit employers’ rights to conduct such investigations…so consult with employment law counsel before embarking on these.
7 Annual Sexual Harassment Prevention Training is mandatory for all New York State employers…as is a written Sexual Harassment Prevention Policy…both required under the 2018 law NYS amendment which added Labor Law Sec. 201-g.
8 The current Travelers application for EPLI for privately held commercial companies is found at: https://www.travelers.com/iw-documents/apps-forms/multicoverage/pdo-1100w-mas-smb.pdf
9 E.g. mail carriers from USPO and/or Fedex and others; the “Poland Spring guy,” utility meter readers; building staff