Most employers work hard to make sure that they follow the law when it comes to human resources policies. But if an employee alleges that a policy was breached, the result could be an employment practices claim, resulting not only in financial loss but also in loss of reputation.
Claims can cover a broad spectrum of actions, including sexual harassment, retaliation, wrongful termination and discrimination because of race, religion, age or gender, and provide for relief to the employee.
“Damages can include compensatory damages, such as replacing the money the employee should have received, and punitive damages,” says Martha Jacobs, a vice president in the Financial Services Group of Aon Risk Services Central Inc. “These cases can take up a lot of time and be very emotional.”
Smart Business spoke with Jacobs about how employment practices liability insurance (EPLI) can help protect your company against employment practices claims.
What key things should business owners understand about EPLI?
Business owners should be cognizant of their duties under the policy. They should understand the definition of a claim, know when they’re supposed to notice a claim and who these notices should be sent to, and know what their rights are in regard to selecting legal counsel. There can be problems if a business owner agreed to use a panel of counsel within the insurance policy but then hires a different firm during litigation and incurs costs without alerting the insurance carrier. Owners should also understand what isn’t covered. There has been a fair amount of litigation around wage and hour claims, such as overtime pay or failure to pay for meal times or breaks. These are not traditionally covered under an employee practices policy. This is a difficult risk to underwrite, an expensive claim to defend and is often deemed uninsurable under public policy.
What should be included in an EPLI policy?
There should be a broad definition of loss, including punitive damage coverage with favorable venue wording. This requires the carrier to look at any jurisdiction that has a nexus to the claim, policy, insurer and insured, to see if the law in any applicable jurisdiction is favorable to providing insurance for this type of claim. Policies are drafted broadly to make it difficult for insurance carriers to find a way to raise an insurability concern.
Business owners should obtain as much control over selection of counsel and settlement authority within the retention/deductible as possible. There should also be broad notice capabilities so the insured doesn’t get caught with late notice arguments. Large companies have a much greater frequency of claims. But smaller companies run into notice difficulties when they do not understand the breadth of the definition of the claim. Smaller business owners should seek to obtain an appropriate period of time to get a claim in to the carrier before any policy provisions are violated and should acquaint themselves with the definition of claim under their policy. There should be a broad definition of wrongful acts so that a wide array of activities is addressed by the policy, including a broad definition of workplace torts and, ideally, third-party coverage.
