Employment: Thinking About Purchasing Employment Practices Liability Insurance... Be Sure You Understand What You Are Buying
When do you think about insurance? After you've been sued? When your agent comes calling?
With the increase of employment lawsuits and Oklahoma's recent court decision allowing small employers to be sued for wrongful discharge (covered in our November 2009 Special Edition), more companies are considering whether they can purchase insurance to cover these claims. Should you?
Only you can decide whether this makes sense for your company. However, while you are deciding, be sure you understand what you are buying.
An insurance policy is like anything else you buy. It is a product with a price. You decide whether the product is worth the price charged. When you go to buy a new car, you read the specs, take it for a test drive, and perhaps even check Consumer's Reports. You should take the same level of care before buying an insurance policy.
Insurance which may protect you from employee claims is often called Employment Practices Liability Insurance (EPLI). It is becoming increasingly more common. However, each policy (like each car) is different.
When you buy your car, you might ask about the gas mileage, the warranty, the bells and whistles, but you might not know the questions to ask your agent about EPLI.
While not an exclusive list, here are some questions you should ask:
What is the price? Without understanding what it will cost, you cannot judge its value to your company.
What types of employee complaints does it cover? Does it cover filings with agencies like the Department of Labor or EEOC, or just lawsuits? Does it cover discrimination claims under federal and state law? What about claims for retaliatory discharge?
What types of employee complaints are excluded from coverage? This is critical to understand. It will generally exclude things like traditional workers' comp claims (you need a different policy for this). However, some of the exclusions can be tricky. For example, if it excludes "intentional" acts, this may be in conflict with its purported coverage of federal discrimination claims which, by definition, include intentional acts.
What will it pay for? Will it pay for your costs of defense, i.e., your attorneys? Will it pay for a settlement? Will it pay for a jury verdict? If the jury verdict includes punitive damages, will it pay for that? Does it exclude any type of cost or damages from coverage?
Is there an amount you have to pay before the coverage kicks in, similar to a deductible or retainer? If so, what is that amount? Is it per matter, per lawsuit, per year?
Who will be your attorney? Often the insurance company reserves the right to select an attorney to represent you. If you want to ensure the attorney or law firm of your choice, you must include that in the policy at the outset. Waiting until a claim is filed will often be too late.
Who will be making settlement decisions? Often the insurance company reserves the right to settle, even in the absence of the employer's agreement. You need to understand your rights and the rights of your insurance carrier in this regard.
What are your obligations to trigger coverage? In other words, when you realize an employee is making a claim or has filed a lawsuit, what must you do to ensure coverage? Generally, you will be required to put the insurance carrier on notice, in writing, within a specified number of days.
In the end, you will need to decide whether purchasing EPLI makes sense for your company. Hopefully, this checklist of questions will help avoid any buyer's remorse.
By Kristen L. Brightmire, firstname.lastname@example.org