Employment Practices Liability Insurance Update
April 2, 2009
From time to time, clients face issues regarding Employment Practices Liability Insurance (EPLI). Such issues include deciding whether to buy or renew such coverage, negotiating beneficial terms, understanding how to proceed if a potentially-covered claim arises, and dealing with coverage disputes. This update provides a refresher regarding some of those key issues.
What is EPLI?
EPLI policies generally cover all claims arising out of the employment relationship, but, of course, there are always “exceptions.” As with workers’ compensation insurance policies, EPLI policies require an annual premium and are subject to a retention limit — i.e., deductible for which the employer remains responsible. When a claim is filed against a covered employer, the insurance company assigns legal counsel from an “approved” or “panel” counsel list to defend the employer, and the litigation process is underway.
Purchasing or Renewing -- Are You Getting What You Pay For?
As an employer, if you are contemplating the purchase or renewal of EPLI coverage, it is essential for you to gain a complete understanding of the nature and extent of coverage being provided through the EPLI policy. Clients sometimes discover, after a claim arises, that certain employment claims have been excluded from coverage as a result of limitations or exclusions contained in their EPLI policies. You should, therefore, carefully assess all limitations, exclusions, and retention limits — i.e., deductibles required by any EPLI policy which you may currently maintain, or may consider purchasing in the future. If you are in the process of renewing an existing policy, a review of the claims history is appropriate to determine whether maintaining the policy is cost efficient and whether you might be able to obtain better coverage with another carrier.
Are You Giving Up Your Right To Select Counsel?
Some clients are surprised to learn that their EPLI policies do not allow them to select their own counsel. While this is a negotiable point when purchasing or renewing an EPLI policy, it is often overlooked by employers who are focused on the potential cost savings associated with EPLI coverage. This can be a problem inasmuch as the attorneys selected by the insurance company may not have a full appreciation and understanding of your company’s employment philosophies and culture so as to provide a defense which is not only successful, but which keeps your company’s long-term employment goals in mind. An ideal time to address this issue is at the point of purchase or renewal. Even when a claim has arisen during the term of the policy, however, it may be a good idea to explore options with your insurer that may allow you to use your known counsel on a case.
What Do You Do When a Potentially-Covered Claim Arises?
When potentially-covered claim arises, it is important to provide notice to the carrier, as well as your counsel, immediately. Notice to your agent and the insurance carrier should be in writing. You should advise the insurer immediately if you wish to use particular counsel on the case. Varnum frequently monitors at no additional charge the counsel-selection process for clients who desire the firm's representation in EPLI matters. If you receive a "reservation of rights" letter, it is important to respond promptly; as such letters may signal that an insurer is evaluating bases for denying the claim. In the event a coverage dispute arises, seek legal counsel promptly to ensure that your rights are protected.
How Can We Help?
If you are in the process of purchasing or renewing an EPLI policy, we would be happy to discuss with you any questions, comments, or concerns which you may have regarding the policy. You have the most leverage to maximize the coverage available by having your concerns addressed at the time of purchase or at the time of renewal. If you have questions that arise during the term of an EPLI policy, such as disputes over coverage, Varnum has extensive experience representing client interests in such matters.
For assistance or further information, please contact David Rhem or Stephanie Setterington of Varnum's employment litigation team, or Mark Allard, who specializes in resolving insurance disputes.