Insurance Advisory Newsletter – Understanding Employment Practices Liability Insurance : September 2024
Employment Practices Liability Insurance (“EPLI”) is a type of insurance coverage that protects businesses against claims made by employees, former employees, or prospective employees against employment-related issues. This includes claims such as discrimination, harassment, wrongful termination (including constructive discharge and retaliation), defamation (libel and slander), invasion of privacy, breach of employment contracts and other employment-related issues, which may be collectively referred to as “Employment Practices Wrongful Acts”. Some EPLI policies may also cover claims of discrimination made by third parties, such as customers or vendors.
Any business, regardless of its size, can face employment-related lawsuits. Therefore, it is essential to have adequate preparation and protection against lawsuits relating to Employment Practices Wrongful Acts, as the same can significantly affect a company’s finances and reputation. From the moment a potential employee is interviewed, there arises risk of an employment claim. For instance, if an applicant believes a particular company’s hiring process was biased, they might allege unfair hiring practices. An effective way to prepare against such claims is obtaining an EPLI policy.
How Does An EPLI Policy Function?
EPLI covers a range of claims by employees who allege that their civil rights have been violated due to Employment Practices Wrongful Acts. Most EPLI policies operate on a claims-made basis, covering claims made while the policy is valid. Claims made after the policy has expired are generally not covered. These policies typically require that all claims are reported to the insurer within the policy period.
EPLI Coverages And Exclusions
| Coverages | Exclusions |
| Defence and settlement costs | Bodily injury (other than emotional distress or mental anguish), or property damage |
| Loss established as a legal liability | Wage and hour law violations |
| Employment related defamation | Workers’ compensation law violations |
| Third party wrongful act (usually covered at an additional premium implication) | Violation of Labor laws |
| Protection to legal heirs, representative in the event of incapacity of the Insured | Fraud or dishonesty |
| Claims against spouse of insured person | Criminal or civil fines or penalties |
| Employment Crisis Management Fund – cost of hiring a Crisis Management firm to handle the ‘Employment crisis’ i.e. media reports of workplace hostility etc. |
Standalone EPLI Vs. EPLI As An Endorsement Under Directors And Officers Liability Insurance Policy (“D&O”)
D&O policy provides protection against claims arising from acts performed in the course of managing an entity by its directors and officers, covering indemnification costs that an entity may have agreed to provide their senior management and allowing them to seek reimbursement from the insurer for these expenses. This implies that the scope of applicability under this coverage is limited in nature.
While D&O policies include additional coverages, such as Employment Practices Wrongful Acts on an entity level, EPLI policy specifically covers the company and its employees against claims arising from Employment Practices Wrongful Acts.
When comparing stand-alone EPLI policies with EPLI coverage added as an endorsement under a D&O policy, several key differences emerge:
| Aspect | Stand-Alone EPLI Policies | EPLI Endorsement Coverage under D&O |
| Scope of Coverage | Stand-alone EPLI provides more comprehensive coverage for all employees. | EPLI as an endorsement is generally limited in scope, often only protecting directors and officers. |
| Applicability | Particularly suitable for entities with high exposure to Employment Practices Wrongful Acts, such as service providers offering staff augmentation services. | As a sub-limited coverage, it complements the standard protections provided by D&O policies. |
| Sum insured | The full sum insured is allocated solely for Employment Wrongful Acts, preventing any dilution with other policy coverages | Increased EPLI coverage as an endorsement can reduce the available sum insured under the D&O policy |
| Effect of Risk Changes | Changes in risk related to increased exposure do not affect the premium or terms of the other policy | Changes in EPLI risk under a D&O policy can influence the premium of the D&O coverage |
| Third-Party Claims | Includes specific extensions to cover third-party claims such as those from clients, suppliers, and distributors alleging sexual harassment or discrimination. | No coverage for third-party claims is available under the D&O policy, since it is limited to directors and key management personnel of the organization. |
| Additional Coverage | A standalone EPLI includes additional extensions such as Employment Crisis Management Fund, which covers the cost of hiring a Crisis Management firm to address media reports of workplace issues and other employment crises | An EPLI under a D&O Policy is an extension in itself. Therefore, no further extensions will be available under Entity EPLI Policy. |
