E&O Insights: Why Your Agency Should Recommend Employment Practices Liability Coverage

Employment practices liability insurance (EPLI) has been around since the early 1990s, mostly due to the passage of the 1991 amendments to the Civil Rights Act. Some of the latest information noted on various websites puts the number of employment-related lawsuits in 2010 at 100,000, up 7 percent to 8 percent compared to 2009 figures. In addition, there have been suits settled for well in excess of $100 million. Without a doubt, claims frequency is rising and claims have a severity potential. When you meet with your prospects/clients to discuss their insurance program, does the discussion include employment-practices liability insurance?

Unless the answer is a resounding “yes,” you could be exposing your agency to a potential errors and omissions (E&O) claim if an employment-related lawsuit occurs and your client does not have the coverage necessary to defend themselves and to pay on their behalf if they are found negligent. In addition, you could be missing out on a tremendous sales opportunity.

Include an EPLI Proposal

EPLI is essentially used to protect businesses against lawsuits by employees alleging a specific employment-related exposure. The list of potential exposures is broad. While most employers are aware of exposures such as sexual harassment, age discrimination and wrongful termination, these are just some of the exposures businesses face that have the potential to result in a lawsuit.

Additional exposures include failure to employ or promote, wrongful discipline, wrongful deprivation of a career opportunity, illegal retaliatory treatment of employees, negligent evaluation of employees and employment-related invasions of privacy. One website states how favoritism has significant potential to result in an EPLI claim.

Lawsuits are on the rise due partially to the spike in unemployment, increased funding to the Equal Employment Opportunity Commission, the Americans with Disabilities Act and the Lily Ledbetter Fair Pay Act of 2009. Bearing this increase in mind, does your agency have a greater potential for one of your clients to have an uncovered claim? Look to include an EPLI proposal in every commercial account review in 2012.

A Few Important Issues

The most important issue to be aware of is that most claims arising from employment-related practices do not fall within the commercial general liability definition of a covered claim because they are often intentional in nature. Most carriers will attach some type of exclusionary language to make it clear that no coverage applies. Today, there are more than 50 carriers writing this class of business. Some write it on a standalone basis while others may include the coverage (for a premium) as an endorsement. Either way, there is a need for a full and comprehensive review. As with most E&O policies, no two policies are the same. Look for issues such as:

• Is the defense part of the limit of liability or in addition to?
• The definition of who is an insured — are all of the employees covered? Are volunteers covered?
• The list of covered exposures. The broader the list, the better.
• What is the definition of a claim? This may vary from one carrier to another.
• Does the carrier provide access to risk management tips that could help the business avoid, or at least minimize, the potential for a claim? Does the carrier provide a hotline to provide guidance on various issues?
• If your commercial account does not have a risk management guide, many carriers have one readily available. This could be a key to making the sale.
• What limits are available? Can you get the umbrella to provide excess coverage?
• Is there a retro date? It is best to impress upon your accounts to buy this coverage before they need it because many policies will exclude acts that occurred before the policy went into effect.

Include actual claims examples in the proposal. Your carriers should be able to provide some. Citing a series of claims of various types can impress upon your customer that such claims do happen and without the proper protection they will need to handle these claims themselves.

Some carriers are willing to provide this coverage with no application in an effort to sell more of it. The limits may be more restrictive, but this may be a good starting point for an account that previously did not have the coverage. For other accounts, request that they complete the necessary applications. Do not try to handle yourself as many of the questions are quite specific and should only be answered by the actual account. Get the application signed as this could be a key element in the agency’s defense if it is alleged that some of the information on the application was incorrect.

A Positive Step

Total annual premiums for employment-related practices liability coverage are currently in the $1.5 billion area. While this illustrates that many businesses are purchasing coverage for this exposure, many contend it is still somewhat of an untapped market. Commit to discuss this issue with your commercial accounts — you may just sell more insurance. Yet, even if your commercial accounts don’t purchase the coverage, by discussing it/providing a proposal, you have taken a positive step toward protecting your agency from a potential claim.