12 Liability Risks We Have Covered. How About You?

Privately Held and Public Companies:

The Need for Employment Practices Liability Protection

We are all aware of the snowballing accusations of sexual misconduct, and the backlash that they have sparked in the USA and abroad. This issue may be a watershed moment for our culture. Companies that tolerate or cover up sexual harassment, perpetuate a culture that fosters it, or fail to provide proper avenues for employees to report concerns and offensives can by pay in multiple ways. This includes difficulties attracting, retaining, and motivating talented workers and also customer defections, ruined business deals and, for both privately and public companies, lost revenue and profit.

Employment Practices Liability Insurance (EPLI) protection is a popular purchase for most businesses, and is a form of insurance protection that has been available for many years. The purpose of this article is to raise your awareness as to the availability of the coverage, and for those who presently purchase this protection, to remind you that limits of less than $1 million may not be adequate for your business.

Risks Covered

Employment practices insurance coverage, as it is known, protects the business against a number of specified risks and they are as follows:

1. Wrongful dismissal, discharge or termination of employment, whether actual or constructive, or breach of an implied employment contract;

2. Employment related misrepresentation;

3. Workplace harassment of any kind, including sexual harassment;

4. Discrimination;

5. Wrongful failure to employ or promote;

6. Wrongful discipline;

7. Wrongful demotion or deprivation of career opportunity, including defamatory statements made in connection with an employee reference;

8. Failure to grant tenure;

9. Negligent evaluation;

10. Failure to provide and enforce adequate workplace or employment policies and procedures;

11. Wrongful retaliation; or

12. Employment related libel, slander, defamation of or invasion of privacy.

What is a Claim?

It is also important to know what constitutes a “claim” under an EPLI policy, and it is as follows:

“A written demand for monetary or non-monetary relief; or civil or criminal, administrative arbitration or regulatory proceeding made against an insured. It also includes a proceeding initiated against any insured before an equal opportunity commission or any similar government body.”

A claim includes both an eventual payment under the policy and always includes defense costs. Of critical importance is to remember that defense costs are included in the limit of liability and, therefore, any money spent on attorney’s fees erodes the total policy payment limit.

If a loss is eventually paid, it means:

“Compensatory damages, punitive or explanatory damages (where payable by law) and settlements and costs of defense. However, loss will not include criminal or civil fines or penalties imposed by law, taxes or any other matter which maybe uninsurable under the law pursuant to which the policy is written.”

The Need for Adequate Protection

As mentioned previously, many clients purchase Employment Practices Liability Insurance, and have done so for years. It is important, as mentioned before, to consider purchasing higher limits than a basic $1 million, as the policy is very broad, covers many risks, and defense costs are generally included in that $1 million limit. It is possible to exhaust the limit just by means of defense costs, rendering the policy useless for paying on behalf of the insured.