Employment Practices Liability Insurance

An employee claims to have been harassed by a supervisor. A teller who was discharged for chronic customer service complaints claims age discrimination. An unsuccessful job applicant alleges he didn’t get the job because of his race. These are all liabilities included in employment-related practices insurance. The topic was touched on briefly in the D&O section, since coverage can be included in that policy. We’ll go into more detail here.

Summary of Coverage

The policy is designed to address liabilities that come out of the employment relationship. Workers’ compensation, issues involving unemployment insurance, and ERISA are excluded.

Coverage is generally included for harassment, discrimination, wrongful discharge, failure to hire, and failure to promote.

No Standardized Coverage Forms

As there are no standard EPLI policies, each insurer’s policy and proposal must be evaluated on its own merits.

If you have been reading along, you should have realized that this is a constant theme in bank specialty insurance policies. A detailed analysis of the coverage is necessary. Any time you get alternative proposals, each policy must be reviewed in detail.

Claims-Made Policy

See chapter fifteen for a complete discussion describing claims-made policy issues.

Limit of Coverage

Most EPLI policies have a limit per occurrence and a policy limit of coverage for the total of all claims, called an aggregate limit. As claims are paid, you use up the limit of coverage available for future claims.

Defense Within Limit

The cost of defending an employment-related claim (attorneys’ fees, etc.) will eat up your limit of coverage. When looking for the correct limit of coverage, consider the cost of the legal system in your calculations.

Definition of Wrongful Employment Practice

Each EPLI policy will contain a definition of the wrongful acts that are included in the policy.

Here are some acts to be considered when reviewing coverage:

  • discrimination
  • negligent hiring
  • wrongful discharge, evaluation, discipline, or promotion
  • employment-related personal injury (libel or slander)
  • sexual harassment
  • workplace harassment
  • failure to hire
  • wrongful termination
  • wrongful retention
  • wrongful infliction of emotional distress
  • excessive or wrongful discipline
  • retaliation

If an act is outside the definition of wrongful act, there is no coverage.

Definition of Harassment

Some policies narrowly define this coverage as “sexual harassment.” A better (broader) definition is “workplace harassment” or “harassment including sexual harassment.” That small change makes a huge difference in protection.

Common Exclusions

Here are some of the more common exclusions in the employment practices liability insurance policy:

-ERISA, workers’ compensation, and disability benefits

-Fair Labor Standards Act claims (wage/hour issues)

-Unemployment insurance benefits

-Lockouts, strikes, and replacement workers

-Severance pay or vacation time owed

-Medical, dental, and life insurance benefits

Third-Party Harassment Liability

Most insurers now expand the employment practices liability insurance coverage to harassment of third parties — suppliers, customers, and contractors.

Here is the definition used by one insurer:

Third-party harassment act means any actual or alleged:

1. Violation of any federal, state, provincial, or local statutory law, common law, or civil law prohibiting discrimination of any kind;

2. Harassment, including any type of sexual, religious, racial, sexual orientation, pregnancy, disability, age, or national origin-based harassment;

3. Defamation, libel, slander, disparagement, or invasion of privacy;

4. False arrest, false imprisonment, or malicious persecution;

5. Bullying;

of a natural person other than an employee, officer, or director, and other than as a part of a lending act.

I almost always suggest this coverage even though there are some overlaps with the personal injury section of the commercial general liability policy.

Fair Labor Standards and Wage/Hour Claims

The federal law known as the Fair Labor Standards Act (FLSA) establishes minimum wages, overtime pay, child labor, hours worked standards, and record-keeping requirements. Legal actions brought against employers are almost always excluded by employment practices liability coverage. However, insurers are sometimes open to offering coverage for defense costs at some relatively small amounts; one hundred thousand dollars is common. Ask your insurance adviser.

Duty to Defend

Does the insurance company defend you in a claim, or do you pick the attorney? Most banks will want to control this aspect of a lawsuit — placing the duty to defend on the insured. Your insurer will probably have the right to veto your choice.

Special Insurance Company Provisions

Some employment practices liability insurance policies include special features for policyholders. Usually these are measures to prevent losses. Insurers may provide a human resources “hot line,” allowing free access to experts to discuss employment actions and situations. Such gives the bank information and opinions on issues that could lead to a claim.

Some insurers will reduce the applicable deductible if a claim results from an action where the insured called an attorney prior to the termination of an employee. Some insurers allow you to call your own lawyer. Others require that you use their attorney.