Employment and unemployment developments, October 2005
It can be said with a fair degree of accuracy that the decade of the 1990s saw the birth of employment practices liability insurance (EPLI). Virtually nonexistent before 1990, the coverage was developed in response to the growing number of employmentrelated lawsuits and, some might contend, the accompanying media attention. (Remember the Anita Hill/Clarence Thomas proceedings in which the subject of work-related harassment became a national preoccupation.) Another strong contributing factor was the fact that finding coverage under existing standard insurance policies was difficult at best.
The policies most often pursued by insureds as sources of coverage-commercial liability, directors and officers, workers compensation, and even homeowners-all contain provisions that give insurers reasonable justification for precluding coverage for damages associated with wrongful employment practices. For a commercial liability or homeowners policy to apply, the damages claimed must be considered bodily injury, property damage, or personal injury, and actions such as wrongful termination, work-related harassment, or unfair job discrimination usually do not come within the meaning of those terms. (Homeowners policies also contain a business exclusion.) Another hurdle an employer must overcome to be granted coverage under these policies is the intentional injury exclusion, because many if not most wrongful employment practices can be considered to be caused intentionally.
Workers compensation policies include employers liability insurance, which applies to bodily injury to an employee that is caused by accident or disease, when the claim falls outside the immunity provided to employers under workers compensation statutes. Intentionally caused injuries are excluded from employers liability coverage, so the same barriers to coverage inherent in commercial liability policies apply to employers liability insurance.
Directors and officers (D&O) insurance typically covers claims for money damages that are not based on bodily injury, property damage, or personal injury. In fact, the latter terms are specifically excluded in D&O policies, as are claims for mental anguish and emotional distress. It is also possible that the particular director or officer may not be named in the policy, which could create a coverage problem, so gaining coverage under a D&O policy is likewise far from a certainty.
Despite the presence of policy provisions that give insurers justification for resisting coverage, insurers have not always prevailed in such coverage clashes. Actually, the results of these disputes have been mixed. As a consequence of rising employment litigation and the uncertainty of the outcome, insurers were compelled to add exclusions for employment-related claims to liability policies in the early 1990s. This ultimately created the need for a specific insurance form that would respond to claims for wrongful employment practices.
Features of employment practices liability insurance
During the 1990s, employment-related practices liability insurance grew from a niche product marketed by a handful of companies to a sizable specialty line. Many variables exist as to format and coverage among the forms used to provide this insurance. EPLI may be written as a stand-alone policy or as an endorsement to a commercial liability or businessowners (BOP) policy. A deductible, generally ranging anywhere from $1,000 to $25,000, is a common feature associated with the coverage. Some forms include indemnity and defense costs “within limits,” whereas others may offer defense costs “in addition to” the limit for damages.
Employment practices liability insurance ordinarily is written on a claims-made basis, with a retroactive date. Only claims first made against an insured within the policy period (or within any extended reporting period option that an insured buys) are covered. In a claims-made form, the offense that causes the “damage” must take place on or after the retroactive date and before the end of the policy period. The retroactive date acts as “a line in the sand,” so to speak. Claims for wrongful employment offenses committed prior to that date, even though the claim is made during the policy period, will not be covered. Ordinarily, the retroactive date will be the inception date of the coverage. However, retroactive dates can be changed or eliminated entirely, although the absence of a retroactive date could subject an insurer to a significant increase in exposure.
Claims-made vs. occurrence
In a policy written on an occurrence basis, the event that triggers coverage is injury or damage that occurs, or happens, during the policy period. As is sometimes the case, the claim may not be made until months or even years after the policy expires. The policy that responds to the claim is the policy in force when the injury or damage occurred. With a claims-made form, coverage is triggered when the claim is first made, provided the offense leading to the claim took place sometime between the retroactive date and the expiration of the policy.
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