Employment Practices Liability Insurance: First in a 4 Part Series

FIRST IN A FOUR PART SERIES:

BREAKING DOWN THE INSURANCE LANGUAGE BARRIER

IN EMPLOYMENT PRACTICE LIABILITY COVERAGE

Any company facing an Employment Practices Liability (EPL) or Employee Retirement Income Security Act (ERISA) lawsuit will quickly find that the stakes are extremely high, and that the issues involved are enormously complex. How well a Company weathers such a lawsuit - indeed, if it is able to financially weather the lawsuit - will depend upon how well its interests are defended.

Companies routinely procure general liability insurance to prepare for a variety of setbacks, from property loss by natural disaster and theft, to claims by customers for bodily injuries. One form of insurance which is commonly overlooked, but which is of increasing interest, is Employment Practices Liability Insurance, or "EPLI."

One of the reasons for increased acceptance and appreciation of EPLI is the proliferation of employment discrimination laws, and the claims which follow. Federal anti-discrimination laws include the Americans with Disabilities Act, Title VII of the Civil Rights Act, the Age Discrimination in Employment Act, and the Equal Pay Act. California laws are even more extensive, both in the scope of individuals protected, and in the amounts recoverable in litigation. Charges filed with the U.S. Equal Employment Opportunity Commission ("EEOC") currently hover at over 75,000 annually, and that agency has been obtaining settlements of increasing value, from $169,000,000 in 1998 to $272,000,000 in 2005. These numbers do not reflect settlements which took place entirely outside the EEOC framework, and amounts obtained in litigation are, as one might expect, significantly greater.

When companies do get sued, what course of action to take is often controlled by the practical consideration of how much can be spent to defend a claim. Even where a company would be inclined to defend a case on its merits, the legal fees and costs involved can be prohibitive, and force a company to settle a claim that it might expect to win. EPLI coverage can help alleviate or eliminate such concerns, and allow a company some flexibility in strategizing and decision-making.

Causes of action typically covered by EPLI include:

•· Wrongful termination

•· Sexual harassment

•· Discrimination

•· Negligent supervision

•· Breach of contract

•· Invasion of privacy

•· Defamation

•· Emotional distress which arises in the workplace

EPLI will usually cover the costs attendant to such claims, whether they arise in civil cases, arbitration, or administrative proceedings (such as investigations and settlements which come through the EEOC or the California Department of Fair Employment and Housing). Whether EPLI covers part time workers, seasonal workers, temp workers, and applicants will vary from policy to policy.

Causes of action typically not covered by EPLI include:

•· FLSA and wage and hour claims

•· NLRA claims

•· COBRA claims

•· ERISA claims

•· OSHA claims

•· Criminal acts, fraud, and willful or reckless conduct

•· Claims for punitive damages

Counsel to Management:

An employer's first line of defense is a comprehensive set of policies to ensure compliance with all applicable laws. The policies must be backed up with procedures, scrupulously and uniformly enforced, and a workforce which has been trained to follow such procedures. Policy handbooks should be developed, not only to provide day-to-day guidance to employees in their rights and responsibilities, but also to help prove, should the need ever arise, that the company has engaged in good-faith efforts to comply with the law.

And finally, employers must be aware that even with all safeguards in place, claims can and will arise. A second line of defense is to develop strategies to anticipate and handle these eventualities. Consider potential exposure, and look into EPLI insurance as part of your overall strategy in risk-avoidance. Be aware that costs and coverage will vary from policy to policy and carrier to carrier, so shop around for a one which meets your company's individual needs. Before buying, check for limits on the specific sorts of coverage you need, and, if you prefer representation by your own counsel, ensure that your policy allows for this. Watch for Part 4 of this series for a discussion of why it is critical to have power to designate your own representation.

Next in the series: Understanding the language of EPLI policies.

The goal of this article is to provide employers with current labor and employment law information. The contents should not be interpreted or construed as legal advice or opinion. For individual responses to questions or concerns regarding any given situation, the reader should consult with Saqui & Raimondo at (831) 443-7100 in Salinas, or (916) 782-8555 in Sacramento.

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