The Growing Significance of Employment Practices Liability Insurance
Dolan, James B., Jr., Defense Counsel Journal
IADC member James B. Dolan Jr. is a founding partner of Badger, Dolan, Parker & Cohen in Boston, Massachusetts. This article, which originally appeared in the January, 2006 Employment Law Committee newsletter, discusses employment practices liability insurance.
Employment practices liability (EPL) insurance is a form of coverage specially written to insure employers against liability for claims of discrimination, sexual harassment, and wrongful termination by their employees. Because of their dual role as counsel for others and employers in their own right, lawyers should be familiar with the specifics of this coverage. Plaintiff's counsel should be alert to inquiring about the existence of EPL coverage because it may facilitate settlement of claims and collection of favorable judgments. Insurance defense counsel may be retained to defend for EPL carriers. All defense counsel should carefully explore whether clients who did not purchase an EPL policy might have a right to defense or indemnity under other common policy forms. Coverage counsel may represent insurers, employers, or claimants in EPL coverage litigation. Finally, since lawyers are often employers as well, they may be involved in decisions about purchasing EPL coverage for their law firms.
Anatomy of an EPL policy: EPL is commonly written either on a stand-alone basis or as a rider for all of the common employer's policies, including directors and officers, employers liability, and comprehensive general liability. In general, these policies offer broad coverage of the sorts of claims now usual in wrongful termination or employment discrimination cases. The policy is written on a claims-made basis with defense costs within its limits. Coverage is triggered by a lawsuit, an administrative proceeding, or a written claim of discrimination, sexual harassment, or wrongful termination. There are often exclusions for punitive damages, contract claims, company downsizing or plant closures, and intentional acts.
Likely EPL coverage issues: Given the growth of EPL coverage in recent years, the paucity of reported decisions is surprising. In spite of this continued lack of guidance from the courts, interpreting these forms should not pose a formidable task for experienced coverage counsel. Because similar language has long been used for various types of errors and omissions insurance, EPL coverage case law will almost certainly follow the general lines of interpretation already laid down for these similar forms.
One EPL coverage problem that may arise concerns the insurability of intentional acts. Ordinarily, discrimination is an intentional act. In general, liability insurance does not apply to what is expected or intended from the point of view of the insured. However, there is widespread agreement that, if the named insured is held vicariously liable for an employee's wrongful acts, coverage exists for the named insured but not for the wrongdoing employee. An employee claim against a corporate employer usually succeeds because the corporation is held strictly liable for discrimination by a supervisor or is found liable for negligent failure to prevent harassment. Hence the intentional acts problem is unlikely to prevent coverage for the typical business which purchases an EPL policy.
EPL coverage is written on a claims-made basis. A much more significant coverage problem is likely to be encountered in seeking the answer to the question, what is a claim? Most of us would say that a claim is a written, or perhaps even oral, demand for money damages. However, to the extent that a reader thinks that only this type of claim can trigger coverage under a typical EPL policy, he or she would be sadly mistaken. Most policies, either in their definition of a claim or elsewhere, treat circumstances that make the insured aware of a possible future claim as if they were claims made during the policy period. This is true even if the eventual claim is not made until after the claims-made policy has expired. …