Although employment practices liability insurance has been around since the 1990s, there’s still essentially no standardization among EPLI coverage forms.
And while most EPLI policies on the market today include coverage for what experts call the “big four”—wrongful termination, discrimination, harassment and retaliation—everything else can vary drastically from carrier to carrier.
“Most policies will have another subsection that serves as almost a grab bag, where they might list out a number of additional exposures covered by the policy,” explains Sean Jordan, senior research analyst, International Risk Management Institute. “That’s where you might see some more variation, and you need to be very aware of how all of that is worded.”
The section typically refers to “wrongful employment practices acts,” “inappropriate employment conduct” or “workplace torts” and enumerates a variety of other employment-related perils that do not fall within one of the big four categories.
Selling EPLI, then, “is not like going out and selling an auto policy or a homeowners policy, where largely a lot of carriers are selling the same policy and there’s a lot of boilerplate language,” says Remmie Butchko, CEO of Georgetown Insurance Service Inc. in Silver Spring, Maryland. “I like to tell our producers to pick a handful of EPLI policies, read them cover to cover and know them inside and out so they can very professionally and properly educate their clients, because if you try to go out and pretend you’re an expert in 15 different EPLI policies, it won’t work.”
And all of that means EPLI “is not a good coverage to get into a price war over,” Butchko adds. “There are a lot of buyers out there that are all about price, but in EPLI, if the price looks unusually low, it’s probably for a reason. Save your price wars for commercial auto or workers comp. You’re getting into very, very dangerous waters when you to try to sell on price in EPLI.”
How can you make sure you’re helping your clients secure the best EPLI coverage possible? Here are five crucial EPLI coverage elements to watch out for:
1) Defense costs. For Butchko’s agency, whose EPLI insureds fall primarily in the small to middle market, “one of the most critical things is how the policy addresses defense costs,” he says. “It can be as simple as whether defense costs are inside the limits or outside the limits, or if they have a sublimit—some people call it an additional limit, but I like to think of it as a sublimit, because it’s a limitation on defense costs.”
A handful of policies, Butchko notes, still offer unlimited defense outside the limits: “They’re few and far between, but there are still some out there.”
Similarly, how does the policy handle choice of counsel? “Do you get to pick your attorney or do you have to rely on the insurance company to say, ‘This is the person who’s going to defend you?’” Butchko points out. “Given the types of situations you see in the EPLI space, I think it’s important for a business to have some say-so and maybe even have the outright choice in who’s going to defend them.”
2) Wage and hour. Next, how does the policy handle wage and hour claims? “We see that all over the map,” Butchko says. “Sometimes it’s excluded altogether, oftentimes it has a sublimit, and most of the time, the sublimit will only pay defense and not actual damages.”
“Every carrier has their own philosophy on wage and hour,” agrees Clint Wesolik, Esq., director/national product leader, EPL, CNA. “Some are offering full indemnity coverage that includes reimbursement for the shortfall in pay due to, for example, failure to pay overtime. That’s still pretty limited for the most part, but for carriers that do offer wage and hour, it is defense costs only and it’s a sublimit.”
After that, the coverage often varies by industry—for example, “carriers may not be willing to offer it for fast food or retail, where there’s just more likelihood of that type of claim,” Wesolik points out. “And then you get into issues about the states—California obviously is a hotbed for this kind of litigation, and after that it’s probably New York and Florida. Those states are very high in frequency for wage and hour-related claims.”
Jordan cautions that wage and hour coverage of any kind is still not all that common on EPLI forms. “We’re still not seeing a lot of wage and hour coverage on standard EPLI policies,” he says. “A lot are going to have a specific wage and hour exclusion. You may be able to have either a wage and hour defense-only endorsement tacked on, or insureds might want to get a standalone wage and hour policy that can cover both defense and indemnity.”
3) Hammer clause. Butchko suggests paying attention to this in terms of any kind of consent to settle. “How is that going to be handled? Does the insured have any say-so, or do they just have skin in the game? That can vary a lot from policy to policy,” he says—and the best option depends entirely on the risk appetite of your insured.
“It’s almost like picking a deductible,” Butchko explains. “Some people are more risk-tolerant than others, and some people say, ‘You know, I don’t mind rolling the dice. I’ll participate 20-30% in a consent to settle because I feel confident that I’m in the right.’ Obviously when the insurance company recommends to settle, we recommend that as well, but it really depends on the buyer. At the end of the day, you are pretty much participating in a loss at that point.”
4) Third-party liability. This coverage would apply in a situation where a non-employee, such as a client, alleges harassment, discrimination or the like against a corporation or one of their employees.
“Some carriers are offering with separate limits, and some are lumping those limits in with standard coverage,” Jordan says. “There’s some variation in terms of whether it’s its own insuring agreement or whether it’s included with the rest of the policy.”
5) Crisis management. Traditionally, this was an expense EPLI carriers “considered overhead for the insured,” Wesolik explains. “The mindset was, ‘We will defend you on the claim, but we are not in the business of covering your PR expenses or any efforts to address the reputational harm associated with a claim.’”
But today, in part thanks to the #MeToo movement, “we’re seeing more interest in that type of coverage, and more willingness on the part of carriers to at least offer some sort of reimbursement for expenses associated with a crisis event,” Wesolik says.
But be careful—carriers currently address the exposure with a wide range of approaches. “Each carrier has its own way of defining what exactly constitutes a crisis event that triggers coverage, and there’s going to be differences in the levels of reimbursement and the types of expenses that are subject to reimbursement,” Wesolik cautions.
“Some policies will say there has to be a reasonable belief that the claim will exceed the retention before the coverage is applicable,” Jordan agrees. “That means you could have insurance companies arguing if your retention is $50,000 and they think, ‘This is going to be about a $40,000 claim based on our math,’ there would be no coverage there—at least not on the crisis management sublimit.”
Additional issues might include exclusion of “industry-wide events,” a requirement that the event causes “material public harm” to the insured organization, or specifications regarding when the crisis event concludes, Jordan adds.
“With some carriers, if you get a PR firm that advises the crisis event no longer exists, then it’s over,” Jordan explains. “Others just base it on when the sublimit is exhausted, and others have a time limit, such as 12 months after the event. There’s all kinds of variation.”
Furthermore, how does the policy define “crisis management expenses and services”? What about “crisis management firm”—does that mean a crisis management company? A PR firm? A law firm? All of the above? And are crisis management limits part of or in addition to aggregate limits? Are limits separate for “personal” versus “company” events? What about retentions and reporting requirements?
“Read very carefully,” Wesolik summarizes. “Make sure you confirm exactly what the coverage would be, because there are major differences among the carriers in what they are willing to offer and where they are willing to offer it.”
Jacquelyn Connelly is former IA senior editor.