With the enactment of the 1991 Civil Rights Act twenty years ago, employment discrimination claims got more power along with a potential for larger damage awards. More important, for the first time jury trials became available under Title VII of the 1964 Civil Rights Act and the American with Disabilities Act. Along with access to jury trials, compensatory and punitive damages became available. With this combination, employers faced increased exposure to potentially rising litigation costs and damages.
In response, insurers came up with a new form of coverage for employers called employment practices liability insurance or short for EPI. Although there’s no standardized policy, EPLI typically provides coverage against discrimination and retaliation claims based on federal, state and local law. These include at race, sex, national origin, age, disabilities, religion,
pregnancy, and wrongful termination.
When purchasing EPLI, policyholders want coverage for their expenses in defending against claims, and they want indemnification for any settlement costs or jury damages that may result.
Unlike other liability insurances, there are no standardized forms for EPLI, and the employer can negotiate to some extent. However, there’s no negotiation over an employer’s employment policies. Employers are required to have them or a carrier may likely refuse coverage.
One of the most important issues today regarding EPLI is the choice of a defense lawyer. If a policy doesn’t include a specific attorney in advance, the insurance carrier will use its own. Although the carrier’s choice of the defense attorney may be a good cost-control for the carrier, it may not be the best quality for the policyholder.
The choice of the defense attorney may be a problem for an employer if they aren’t familiar with their role in the decision. Going into litigation, an employer may want its own attorney.
However, the employer won’t have that option unless it’s discussed, negotiated on and agreed upon prior to the policy being endorsed. Otherwise, if the company wishes to use its own attorney and the policy doesn’t endorse it, the carrier will not pay for the defense of the claim. In most cases, most carriers of EPLI are rigid on defense coverage and want their panels of attorney to handle the defense of any claims as they can control the costs as well as the overall defense of a case.
In general, the carrier will approve the defense counsel at the onset of a claim. In addition, the employer needs to get the carrier’s input at every step and the carrier will be involved in any settlement discussion. In the case where there’s mediation, the carrier and the employer have to work together and make agreements on who participates in the mediation.
With the rise in wage and hour claims, many carriers are reluctant to issue wage and hour coverage even though there’s a huge demand for it. The reluctance is due large damages, local laws that make compliance difficult, and too much misclassification existing already. 12.23.2011