Insurance for Employers (EPLI): 4 Key Considerations
Employment Practice Liability Insurance (EPLI) coverage is not the solution for every employer. Here are four key considerations which are complicated enough that they require the assistance of a knowledgeable and trusted insurance broker and an experienced employment defense attorney.
- Selection of Counsel. Most policies provide for the employer to be represented by panel counsel chosen by the insurer. For Gainesville employers, this may mean remote representation by an unfamiliar attorney located in a different city. The attorney also may have different experience, skills, and performance standards than those to which the employer is accustomed. To avoid this problem, an employer should opt for a policy that allows the employer to select its employment defense counsel.
- Coverage. EPLI typically covers limited claims of discrimination and harassment based on a protected status, retaliation, negligent supervision and retention. It is not umbrella coverage. In fact, most EPLI policies exclude many common claims that an employer may face related to breach of contract, wage and hours under the FLSA, labor matters under the NLRB, plant closings under the WARN, employee benefit issues under COBRA and ERISA, workplace safety under OSHA, and workers compensation. Enforcement of restrictive covenants is also generally excluded. The exclusion of FLSA wage and hour claims, however, is particularly significant as these claims carry the potential for liquidated damages and substantial attorney fees and are the most likely source of employment-related liability. Recently, insurers have been selling endorsement for FLSA coverage for defense costs only—not indemnification. In some cases, this endorsement coverage seems to have resulted in unnecessarily extended litigation under the FLSA which allows plaintiff’s counsel to run up attorney fees which, like wages and liquidated damages, are uncovered by EPLI and payable solely by the employer. Special consideration should be given to whether an endorsement for FLSA coverage is truly helpful.
- Policy limits and the deductible. Companies choose a policy with a deductible of $15,000 or more to keep costs down. A deductible of $15,000 is not helpful for employment-related claims that are simply filed at the administrative level and go no further. These claims often cost less than $15,000 in fees and costs to resolve. Moreover, if the deductible is on a per case basis and the employer faces a spate of cases as may occur in response to a particular manager or practice, EPLI does little to control costs.
- Defense costs and settlement. Defense costs are usually included within EPLI. Every dollar paid for defense erodes the amount available for settlement or to pay a judgment. This is something plaintiff’s counsel may factor into the case evaluation. However, the insurer and employer may disagree on settlement. While the insurer may want to reduce the risk of exposure and settle the claim, the employer may not want to send a message to employees that employees who bring frivolous claims will receive at least a nuisance settlement.
Employers who have or are considering EPLI should thoroughly analyze the policy and understand the coverage limits.