Essential EPLI Components

Steven Cesare, Ph.D.

A business owner from Arizona called me the other day to talk about his Company’s policies, procedures, and employee handbook. His underlying intent was to simplify internal operations, align systems with results, and minimize legal exposure. As the memorable conversation continued, his concern for increased defensibility against disgruntled employees, avaricious lawyers, and intrusive government auditors became increasingly salient.

Characteristically, I broached Employment Practices Liability Insurance (EPLI) to him. Unaware of its utility, I rhetorically asked him if he would feel comfortable with a fleet of 35 Company vehicles without any vehicle insurance. In response to his reflexive laughter, I then non-rhetorically asked “Do you feel comfortable with a workforce of 85 employees, without any insurance coverage?” What’s more dynamic, risk-laden, and financially-threatening to your Company, vehicles or employees?”

He stopped laughing.

I suggested he contact his insurance broker to solicit multiple EPLI proposals predicated on the best fit for his Company. Additionally, the business owner should require the benefits broker to only consider policy submittals that contain noteworthy components that extend value to the Company, though not always stipulated by the insurance companies. Since the business owner pays the benefits broker, the business owner should request that the benefits broker review all the policy submittals within the context of the business owner’s Company needs and make appropriate recommendations for adoption.

The business owner is paying the benefits broker, right? Funny how that customer service thing gets conveniently inverted.

The standard topics that should be included an effective EPLI policy include the following:

Definition of Insured: The policy should broadly define those people being “insured” (i.e., covered) to include directors, officers, employees (e.g., full-time, part-time, seasonal), and independent contractors.
Definition of Claim: The policy should broadly define a “claim” to include written demands for monetary damage, as well as criminal, civil, administrative, and regulatory proceedings, investigations, and arbitrations.
Definition of Loss: The policy should broadly define a “loss” to include damages, settlements and judgments, defense costs, front and back pay, and punitive damages (with most favorable venue wording).
Definition of Wrongful Employment Practice: The policy should broadly define a “wrongful employment practice” to include wrongful termination, sexual harassment or other unlawful harassment, violation of federal, state, local or common laws concerning employment discrimination, employment related misrepresentation, wage and hour, wrongful deprivation of career opportunities, negligent evaluation of employees, failure to adopt adequate employment policies, defamation, and retaliation.
Prior Acts Exclusion: The policy should not exclude any acts that occurred before the policy’s adoption date.
Multiple Agency Claims: The policy should cover claims filed by individuals as well as claims filed by agencies (e.g., EEOC, DOL, state agencies) on behalf of individuals; this is critical given the lack of that detail cost Cracker Barrel Inc. $2,700,000.
Emotional Distress and Mental Anguish: The policy should have emotional distress and mental anguish carved out of the bodily injury exclusion since they are commonly alleged in employment practices lawsuits.
Retaliation Carve Outs: The policy should have carve-outs for certain exclusions (e.g., ERISA, COBRA, FLSA, OSHA, NLRA) related to retaliatory claims.
Contract Exclusion: The policy should contain wording in the contract exclusion that provides the exclusion would not apply if and to the extent that liability would have attached in the absence of such a contract.