The likelihood of an allegation of discrimination or harassment, wrongful termination or failure to promote, increases as companies grow and diversify. You have several options to manage this risk as a business owner. You can either purchase an Employment Practices Liability Insurance policy (EPLI) or you can have sound internal controls and supervision. It is possible to be 100 percent correct and still spend thousands of dollars on defense. These defense costs can be covered by an EPLI policy. This type of coverage is less expensive.
Each EPLI policy is different. This type of coverage can help you to purchase a product that works as promised. When filling out the application, it is important to be honest and thorough. Answers to the application questions are considered representations, warranties, and the basis for coverage. False or inexact responses can lead to denial of a claim.
EPLI policies are usually written on a “claims-made” basis. The policy will only respond if a claim is made during the policy period, or for an extended reporting period. This is in contrast to commercial auto and general liability policies that are occurrence policies. The policy in effect at the time an “occurrence” or loss responds. Any retroactive dates on the policy will exclude claims that were made during the policy period but not before it. Full coverage for prior acts should be purchased if it is offered or made available. You should also understand when the insurer is obligated to notify you of a possible claim. Is it notice of an EEOC accusation, notice of legal action by employees attorney, or knowledge of an incident that could lead to accusations?
Many EPLI policies have a consent-to-settle clause. You should understand that although you have the right not to accept a settlement offered by the insurer, you may be responsible for any additional money awarded.
It is crucial to determine whether defense costs fall within or beyond the policy limit when setting a liability limit. If defense costs are included in the policy limit, then all money spent on defending an accusation will reduce the amount of money available for settlement. A policy should also contain a “duty of defense clause.” This clause could make you responsible for any costs to defend yourself. After the claim is resolved, the insurance company would reimburse you. To reduce premiums insureds might be inclined to buy a higher deductible. It is important to determine if the deductible covers defense costs, a settlement, or just settlement when making this decision. A large deductible could be purchased thinking that they would only have to pay for a settlement they consent to. However, they will need to reimburse the insurance company for every dollar they spent on defense. You should also understand that deductibles are applicable to each claim. While a large deductible may be appropriate for one claim, you can spend the same amount twice if another claim is filed.
It is crucial that the policy covers punitive damages awards. This protection is important, even though the state’s ability to respond to such an award may vary, provided that it is allowed by law.
It is important to define what constitutes a “wrongful employment act” and an “act of discrimination”. Compare policies by comparing the definitions. It will not be difficult to identify which policy provides better protection, or why one policy costs more. Exclusions should generally refer to coverage that is better addressed by other policies or previous claims, as well as criminal or malicious actions.
According to the courts, the workplace is “where you do business”. This broad definition would include the office. It could also include the company picnic or happy hour at the local pub, if the subject of the discussion is work-related. There are many ways to be accused of “wrongful employment act”. An accusation of this nature requires that you are completely unprofessional.
