A popular insurance
text starts with, “The growth of federal and state legislation dealing with
employment discrimination and sexual harassment, the changing legal views on
wrongful termination, and the increasing tendency of aggrieved parties to turn
to the courts for settlement of such disputes have caused insurers to
specifically exclude coverage for such employment-related claims in the
commercial general liability policy.”
To fill this gap, a
number of insurers are offering employment practices liability (EPL) coverage
as an endorsement to the commercial general liability policy or as a
stand-alone policy. Independently developed by each company, the EPL coverage
forms vary by company, however, most policies are similar in terms and
conditions.
EPL policies are
usually written on a claims-made basis, which means that for a claim to be
covered, it must occur during the policy term. Extended reporting periods from
one to three years can be added for an additional premium.
In addition to
damages paid for judgments or settlements, the cost of defense is covered.
However, it is usually paid from the limit of liability, not in addition to the
limit of liability. Most EPL policies specifically cover back pay. Back pay is
commonly awarded to successful claimants in discrimination and wrongful
termination actions.
Typically, the
definition of “insured” in an EPL policy includes the corporation, its
directors and officers, its employees, and, in most policies, its former employees.
Some policies limit the definition of “insured” to include only managerial
employees.
The deductible for this coverage ranges from $1,000 to $250,000,
depending on underwriting factors. One difference from other types of policies
is that the EPL policy usually requires the insured to participate in losses
exceeding the deductible. The amount that the insured contributes after the
deductible has been satisfied is based on the “participation rate.”
Participation rates are usually 5 to 10 percent, but can reach as high as 25
percent depending on underwriting factors.
