Insurance and Employment Law Pitfalls – Proactively Advising Your Clients
June 20, 2014
Jonathan Fraser Light

Jonathan Fraser LightI practice employment law on behalf of over 1000 companies; my “elevator speech” is that I keep employers from getting sued by their employees. As commercial insurance brokers, you are similarly situated: you are trying to keep your business clients from being sued. Not just by employees, but by every other possible litigant out there today.

Let’s focus on a few employment insurance issues that you may want to watch out for with your clients, and a couple of other “value added” items that you can mention next time you meet with them.

I tell clients that there are a few proactive things they can do to protect themselves from employee claims. First, I find that employment practices liability insurance is sometimes misunderstood or seen as an expensive luxury. I know that many carriers are reluctant to write EPLI in California (claims! Damages! Runaway juries!), and thus it’s a bit more expensive. Clients sometimes think that they are too small and shouldn’t bother, but I tell clients that a few years ago my two highest grossing billable cases for the year were for a 16-employee non-profit and a nine-employee insurance agency; both had EPLI and so the pain was much less acute.

Clients often misunderstand what they are getting with EPLI. To avoid blowback on you, be very clear in writing that the client is not getting coverage for wage and hour claims; except maybe for their attorney fees, and even that is usually capped. Advise them about choosing their attorney up front, as many carriers will allow that. Most clients won’t care, but enough do that they will be less frustrated when there is a claim.

Make EXTREMELY clear to clients about their duty to timely tender the claim. As you probably have experienced, carriers have become much stickier about accepting what they perceive as late claims. I have seen multiple horror stories in which employers decided to handle it themselves at the government administrative claim stage (e.g., Department of Fair Employment & Housing). The insured thinks it’s a small matter, they did nothing wrong, and it will go away. And then it doesn’t. And five months after the administrative claim is finished unsuccessfully, there is a lawsuit. It’s finally tendered to the carrier, and either it’s rejected as untimely or it’s a new policy period, or it should have been disclosed on the application and the claims tail has expired. Make sure your clients understand their obligation to tender right away. Even if it’s premature, they have put the carrier on notice and a subsequent claim usually will relate back. Clients sometimes fear that they will be cancelled or their premium will increase if they make a claim. Those are valid concerns, but the more immediate problem is the lawsuit staring at them and the fees and damages that may go with it. Tender!

So where is the good news? There is none, so let me mention two more items quickly. Have your clients consider arbitration agreements with employees. It’s cheaper, faster, and less risky. But implementation has to be handled properly and employers need to be aware that they (or their carrier) must pay for the arbitrator. That can be expensive, but’s still far less expensive overall than a jury trial. And no homemade arbitration agreements. You must have an experienced attorney help on this. I could spend another thousand words on how employers have screwed up on arbitration agreements. You may also be able to avoid court or arbitration on class action cases; each employee may have to litigate individually through arbitration. Some employment defense attorneys are anti-arbitration overall, but I have had positive experiences recently on cases that likely would have been lost in a jury trial.

Two more points of proactivity. First, clients should do an HR audit just like you do insurance audits for them. There are myriad employment law pitfalls related to misclassification (exempt v. non-exempt employees), overtime, meal and rest breaks, and independent contractors who are really employees. I have a case right now in which the client thoughtfully read the Labor Code and concluded that he could pay his employees nine days after the close of the pay period instead of seven. He was wrong, and that could cost him several hundred thousand dollars in penalties for that little two day glitch.

Lastly, one of the most troublesome areas I deal with is disability and leave of absence situations. There are several pitfalls here and clients should NEVER attempt to navigate these rules without effective counsel. They should be more conservative than they would ever expect, because even if they are right on the law (which is occasionally true), that doesn’t stop a claim from being asserted. No matter how well we counsel our clients and how well we work to avoid potential claims, they may still get sued. And that’s where effective insurance coverage—and effective counsel—can do wonders.

Jonathan Fraser Light is a founding Partner of LightGabler, an 11-attorney firm specializing exclusively in employment law consulting and litigation on behalf of management. He can be reached at or 805.248.7214.