Are You Offering Employment Practices Liability Insurance?

ARE YOU OFFERING EMPLOYMENT PRACTICES LIABILITY INSURANCE?

by Curtis Pearsall

Claims alleging wrongful employment practices have undoubtedly increased significantly over the last decade. According to USA Today, an estimated 450 employment lawsuits are filed every day. One survey reported that half of all firms sued spend more than $50,000 (and one-third spend more than $100,000) defending against these claims, in addition to the actual cost of the settlements or verdicts. The average plaintiff's damages in employment lawsuits exceed $250,000, and 15% of all verdicts top $1 million.

Because of this market need, Employment Practices Liability (EPL) coverage was created in the late 1980s. This product was designed to cover EPL claims, which fall into four broad categories of conduct:

• discrimination
• wrongful termination
• sexual harassment
• a variety of other workplace torts

A large number of companies now offer this coverage, and sales are certainly on the rise. Yet, many commercial clients still have not purchased EPL. The cost may be one reason, although that has come down drastically. Is it possible that many of these clients go unprotected because no one has offered them a proposal?

Let's assume that one of your commercial clients was not aware that this coverage was available, you never offered them a proposal, and they get hit with a claim costing $50,000 in defense and $250,000 in judgment. Will your agency be sued for failing to provide proper coverage (the primary cause of E&O claims)? The odds are against you.

Here's a recent E&O claim that illustrates this scenario. The ending is not pretty.

A nursing home employees was tested for drug use after a narcotic disappeared from the medical department. The employee sued, alleging wrongful termination and defaming statements following the drug-testing procedure. The matter was reported to the nursing home's Comprehensive General Liability (CGL) carrier, but it denied coverage. The nursing home then sued the agency, contending that the agency should have informed it about EPL coverage.

The agency defended itself by saying that the client had requested and received the CGL policy and had never requested EPL coverage. The case was settled by negotiation. The damages sought were $75,000, and the case was finally concluded for $20,000.

This claim could have been avoided if the agency had provided the nursing home a proposal for EPL. If the client had then declined to purchase the coverage, solid documentation (including the signature of the client indicating the refusal of the coverage) would have given the agency a solid defense.

Although companies are currently broadening the scope of this coverage, it's important that you recognize that EPL policies vary widely. This review is not intended to key in on all the important features, but should serve as a good starting point. Areas to investigate include:

• Who is the covered organization?
• Is there vicarious or third-party Liability coverage?
• Are employees covered as insureds?
• Is the policy limit per claim with an aggregate, or just an aggregate?
• Is defense within the policy limit, or must it be added?
• What is the co-insurance provision?
• How are claims resulting from the same act treated with regard to deductibles?
• What types of claims are excluded?
• Is coverage written on a claims-made or a claims-made-and-reported basis?
• What's the definition of a claim?

While most policies cover discrimination, wrongful termination, sexual harassment, and workplace torts, the definition of these areas may vary. Don't assume that all companies define these perils the same way! Be alert for retroactive dates that severely affect the coverage provided.

Offer each of your commercial clients a proposal for this important coverage. You're likely to sell some, generating some revenue. You'll also protect yourself from a possible E&O claim.