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Prestige Insurance Group, Inc.

Insurance for employment-related liability has been a standard component of corporate insurance portfolios since the mid-1990s, when standard general liability policies began excluding coverage for employment risks. While some corporate insureds elect not to shift employment risks to an insurer, many purchase employment practices liability (EPL) coverage to protect the company, its executive team and other employees from lawsuits filed by employees, former employees and applicants asserting employment claims.

Scope Of Coverage


EPL policies are fairly standardized and cover common employment-related risks: wrongful discharge or discipline, employment discrimination, sexual harassment, violation of state and federal statutes designed to protect employees, negligent compensation, promotion or hiring decisions, and other claims arising from the employment relationship. EPL policies may also provide coverage for certain inappropriate conduct toward third parties that mirrors the coverage for employee claims. This third-party coverage may be contained in a separate insuring agreement. Finally, employee benefits coverage protects the employer from liability for negligence in the administration of the company's employee benefit plans. This coverage may be included in an EPL policy, added as an endorsement, or available through a separate policy or insuring agreement.

Covered "Loss"


Considering the range of available remedies in an employment discrimination case, the "loss" covered by an EPL policy will be carefully defined. Covered damages typically include compensatory damages; punitive, exemplary or multiplied damages, if insurable under applicable law; liquidated damages awarded pursuant to the Age Discrimination in Employment Act, Family and Medical Leave Act, or Equal Pay Act; back and front pay; defense expenses; and attorneys' fee awards.

Conversely, other remedies or damages are commonly omitted from covered loss, including:
  • The cost of the insured's compliance with non-monetary or injunctive relief
  • Uninsurable amounts
  • Taxes, fines and penalties, with a possible exception for punitive, exemplary or multiplied damages
  • Future salary, wages, commissions or benefits
  • Salary, wages, commissions, benefits or other monetary payments that constitute severance payments
  • Benefits owed to an employee

Exclusions


Property damage and bodily injury, both covered under CGL policies, are typically excluded from EPL policies. Claims arising from an alleged violation of obligations imposed by laws relating to Social Security, unemployment insurance, workers compensation, disability insurance, the Worker Adjustment and Retraining Notification Act (WARN), Occupational Safety and Health Act (OSHA), Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA), National Labor Relations Act (NLRA), ERISA, and wage and hour laws are commonly excluded — often with an exception for retaliation claims.

Breach of contract, including breach of employment contracts and collective bargaining agreements, are also commonly excluded from coverage under an EPL policy.

Other Provisions


EPL policies are typically issued on a claims-made basis, such that the policy in effect when a "claim" is first made against the insured is the policy period triggered. Note the definition of "claim"; in an EPL policy often includes EEOC proceedings. This is important because receipt of an EEOC charge of discrimination will often trigger the insured's notice obligations under an EPL policy. If the insured waits until the complaining employee files suit, the insured may face a late notice defense that could compromise coverage.

Note also that an EPL policy's limit of liability is often eroded by defense expenses, in addition to the payment of settlements or judgments. Faced with an eroding policy (where limits are eroded by defense costs), the insured may want to pursue early settlement opportunities to avoid wasting policy proceeds on defense of the claim, particularly where the policy limits may be insufficient to coverage the entire defense and potential liability.

Recent Regulation Affecting Employer Liability Risks


The scope of employer liability may be expanding of late in two key areas, namely the employer-mandated provisions of the Affordable Care Act (ACA) and recent legislation regarding social media.

Affordable Care Act Exposures


Beginning Jan. 1, 2015, employers with 100 or more employees must offer health insurance coverage to employees who work 30+ hours each week or 120+ hours per a month. Noncompliance subjects employers to stiff penalties. While the implementation and enforcement of the ACA is still riddled with uncertainty, employers will undoubtedly face new areas of potential liability exposure stemming from its mandates. For example, the ACA permits plan participants and beneficiaries to utilize the enforcement provisions of ERISA to recover benefits, enforce rights or clarify rights under an ACA plan.

As employers seek to understand and comply with their obligations under the ACA, civil suits alleging violations of the ACA may trigger the company's fiduciary liability, employee benefits liability or directors and officers (D&O) liability coverage. Notably, some fiduciary liability insurers now offer defense coverage for plan sponsor (or settlor) conduct that may be beneficial to corporate insureds. The whistleblower and anti-retaliation provisions of the ACA may likewise give rise to both potential civil liability and governmental investigations that may trigger the company's EPL coverage or the defense provisions of a D&O policy. Finally, employers that restructure their workforces to avoid or mitigate against ACA mandates may see new claims arising from those decisions. Fiduciary liability policies may provide coverage or a defense benefit for settlor or plan sponsor function claims in connection with such lawsuits.

Social Media Risks


Employee privacy remains a hot topic, particularly in the social media context, with respect to both existing employees and job applicants. In some jurisdictions, a potential employer may be liable for checking an applicant's public Facebook profile and discovering information such as birth year, marital status, or gender of the applicant's significant other, which cannot be considered in the hiring process. Currently, 28 states have enacted, or are in the process of enacting, legislation that prohibits an employer from asking or requiring an applicant or current employee to provide the employer accessibility to their social media or other accounts. This type of legislation may also prohibit forcing an applicant or current employee to "friend" or connect with the employer or, in the employer's presence, forcing them to log into their accounts. These new laws may also protect applicants or employees from retaliation by the employer if they refuse to comply. The employer's EPL policy may cover this type of liability, depending on the policy's terms and definitions — in particular, the definition of Employment Practices Wrongful Act.

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Protect your business. Call Prestige Insurance Group, Inc. at (305) 969-8776 for more information on Miami employment practices liability insurance.

(Article courtesy: Amy Elizabeth Stewart and Whitney Warren via Insurance Counsel)
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