Clients often ask whether they should purchase employment practices liability insurance (EPLI) to protect their businesses from employee claims. Below are a few tips on EPLI coverage, why you need it, what it covers and does not cover, and some choices you will need to make in connection with the purchase.
Generally, EPLI is insurance coverage for employment matters. It is not simply included in your regular general liability policy; it is purchased separately.
EPLI typically covers what are referred to as “tort” claims filed by employees. Such claims typically include harassment, discrimination, retaliation and wrongful termination, among a few other categories.
EPLI generally covers your employees and supervisors if they are sued in an employee claim.
A typical policy has $500,000 or $1M of coverage. If you have highly-compensated people you might consider getting $2M in coverage. Employment damages can be much more significant with high earners.
The EPLI policy typically will cover your attorneys' fees as well as any loss or settlement up to that amount (after the deductible is exhausted). This also should include the plaintiffs' attorneys' fees charged to employers when the employee is found to be the prevailing party.
EPLI does not typically cover wage and hour claims, which can be the subject of costly class actions. You may be able to purchase a separate “rider” as part of the primary EPLI policy that provides a limited amount of coverage for wage and hour claims. The additional coverage typically will pay a certain amount of your attorneys' fees and costs in defending the claim. We now have seen a few policies that specifically exclude coverage for representative actions, so be sure to consult with your broker about that point as well.
The EPLI policy typically will cover a lost wages claim only if it is an inherent part of an overall tort claim. If there are separate meal and rest break violations, however, they typically will not be covered (without a wage and hour rider) because they fall into the uncovered wage and hour category.
EPLI does not cover workers’ compensation claims for underlying injuries; these claims would be covered under your workers' compensation insurance. However, EPLI policies may cover workers' compensation discrimination and retaliation claims, which are not covered by your workers' compensation carrier.
If you have an arbitration agreement with your employee, the EPLI policy may cover the cost of an arbitrator (which can be $10,000 a day or more), subject to the policy limit.
The "deductible" is sometimes referred to as a "retention," but the general principle is the same: you are responsible for the first $25,000 (or $50,000, or $100,000, etc.). Deductibles are negotiable, but typically are a minimum of $25,000. Some policies have no deductible and cover the entire cost of your attorneys' fees, plus any settlement or judgment, and the carrier then collects some percentage from the company as your share of any payments under the policy.
Your policy may or may not allow you to choose your attorney; this is an important question to ask. In most cases, the carrier assigns your counsel from their “panel counsel,” or allows the client to choose counsel only from that panel list. Some carriers allow clients to choose their counsel, but this option is limited.
To be able to select counsel you trust, it is ideal to have a "choice of counsel" clause in your policy, so that you can work with your chosen counsel when a case arises. If you cannot obtain a choice of counsel clause, an alternative option is to ask that the carrier pre-approve your chosen counsel for employment law matters.
It is critical that you notify your carrier as soon as you are on notice that an employee demand or claim has been or is likely to be asserted. Insurance policies have strict notice requirements, and delay can result in a loss of coverage.
Employers often ask whether it would be better to refrain from tendering a claim to the carrier if it appears that it will settle quickly. To the contrary, it is critical to provide notice to the carrier no matter how you think the claim might be resolved. In the event that the claim does not settle, the carrier may later decline coverage based upon the lack of timely notice, leaving you to incur not only the cost of the insurance premiums but also the fees and costs of the pending case.
EPLI can be costly, but it is a highly-recommended safety blanket for employers wishing to limit their financial exposure in the event of a claim. Although 98% or more of legal claims are settled before trial, the expense of getting to settlement (attorney fees and costs to defend the action) as well as the actual cost of the settlement generally warrant that employers minimize the financial burden by adding EPLI to their portfolio of insurance coverage.
Ensuring that your business has the right insurance coverage in place is an effective way for employers to protect against several of the “gotcha” traps in California. As with other employment law "best practices," a bit of preventative action can go a long way toward mitigating later (costly) employee claims, and can provide some much-needed peace of mind.
If you currently do not have EPLI coverage, contact your insurance broker to obtain more information and obtain a quote for EPLI insurance as soon as possible.
For further information regarding EPLI or assistance with employment law questions, contact the attorneys at LightGabler.
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