EMPLOYMENT PRACTICES LIABILITY REVIEW
A product of growing value is Employment Practices Liability Insurance (EPLI). Prior to its introduction, risk managers and corporate officers thought this exposure was covered under other policies. General Liability and D&O policies were not designed to cover these exposures. General Liability policies do notcover "intentional acts" such as employment discrimination, breach of contract, and wrongful discharge. D&O coverage may respond depending on the scope of protection included. Other forms of insurance do not provide adequate protection for employers facing today's employment claims and litigious environment. The void in the insurance marketplace has led many insurers to respond to the needs of corporations and develop an EPL policy designed specifically to address employment related claims.
Historically, employees filed about 25% of all D&O claims (50% or more from private companies). Employment Practices Liability Insurance coverage is offered by insurance companies in two ways, A) as an enhancement to the Directors and Officers Liability Policy and B) on a stand alone basis. The stand alone policy provides coverage to all employees as well as the corporate entity. Coverage for the entity eliminatesany question of allocation which becomes an issue when EPL is endorsed onto the D&O form, as the PublicCo. D&O policy generally does not provide entity coverage. (It is now universally available for privately held firms). When a claim is brought against a company alleging wrongful termination, sexual harassment, and/or discrimination, the company is named in the suit as well as the employee who is accused of theviolation. When EPLI is endorsed onto the D&O policy, there is a large deficiency in coverage. Allocationsmay be split between the employees and entity, which could leave a large gap in coverage that is otherwiseinsurable by purchasing a stand alone EPL policy. Also, the retentions are generally much higher on theD&O policy. The key justification of pursuing this protection on a "stand alone" basis is to avoid dilution of limits prevalent in a shared limit approach.
According to company executives, risk managers and human resource professionals, even for firms with well managed human resource practices, these realities reflect the perilous legal climate facing allemployers. EPLI coverage has become a standard policy which few, if any, employers will go without. As long as the breadth of coverage is offered at attractive premium levels employers now have a quality risk-financing alternative to "self-insuring" this very difficult risk.