Employment Practices Liability Insurance (EPLI) covers a wide variety of employment-related exposures, from the Equal Employment Opportunity Commission (EEOC) and discrimination claims to sexual harassment and more. Below, we explore a few key coverage components in greater detail. Understanding these coverage offerings and knowing how it impacts your business will help you and your insurance broker craft a custom-tailored policy to fit your needs.
EPLI for staffing companies
It’s essential to ensure the definition of “employee” extends to temporary/placed employees in your EPLI policy. The ability to extend coverage to your clients as co-defendants is important in the event a claim is made by a temporary employee for a wrongful act against the client/host employer. Where available, you should also request the policy be rated based on billable hours rather than headcount to secure the most competitive rate.
EPLI for PEOs
Make sure the definition of “employee” extends to leased employees that you provide to others under a contract. Coverage should also be provided to your client companies for the extent claims arise out of the client company’s wrongful acts against your co-employees or the co-employees acts while in the service of your client. It’s important to set forth parameters in your client contract regarding who will pay the deductible in the event of a claim. Many carriers can “stair step” deductibles for your PEO clients based on their individual sizes.
Choice of counsel
Under a typical arrangement, the insurance carrier relies on a panel of qualified employment attorneys to provide defense in the event of a claim. However, some carriers allow an insured to designate their own employment attorney in lieu of the panel approach. This is a conversation worth having with your broker prior to renewal. The carrier will require basic information, such as the attorney’s name and hourly rates. If approved, the attorney will endorse your policy, allowing you to use the pre-approved attorney of your choice.
Wage and hour
There are carriers that have begun writing wage and hour coverage, but it remains quite restrictive in scope (coverage extends to in-house employees only with no coverage for temps) and remains cost-prohibitive for most. However, more carriers are willing to build in a defense only sub-limit for covered wage and hour claims. Generally, these sub-limits are in the $50,000 – $100,000 average price range.
Third party coverage
Some policies may allow you to extend harassment and discrimination coverage pertaining to claims made by third parties, such as vendors or suppliers. For instance, if a mail delivery person alleges harassment by one of your employees, this coverage would apply.
Hammer clause
All EPLI policies contain a settlement provision commonly referred to as the “hammer clause.” In a typical policy, the insurance carrier requires your permission to settle a claim. This provision states that if both your insurance company and the claimant agree to settle the claim, but you don’t agree, the total claim payment (including defense) can be limited to a certain percentage of the settlement amount — 150% is a common sublimit.
For instance, if your carrier and the claimant agree to settle a claim at $25,000, but you don’t agree to the settlement, the carrier would continue to defend until an agreeable settlement is reached, the claim is dismissed, a judgement is made, or until their costs reach 150% of the original settlement amount. Any defense costs and judgements exceeding higher than this amount would be the insured’s responsibility. Settlement provisions can vary significantly depending on the carrier, so consulting with your broker to help determine the exact wording of the policy’s hammer clause is advisable.
To truly protect your organization from EPLI claims, you must go beyond merely understanding and purchasing coverage. You must implement written policies and procedures that address the issues of harassment and discrimination, and ensure all employees receive initial training as well as adequate ongoing training pertaining to their actions and responsibilities under your employment. For further assistance, contact a Marsh McLennan Agency (MMA) advisor.
