Corporate counsel who are unfamiliar with negotiating the company’s employment practices liability insurance coverage eventually will discover that not all claims are created equal in the eyes of an insurer.
Businesses typically purchase EPLI to underwrite the legal costs associated with adverse employment actions and alleged discrimination claims.
“Most EPLI policies are what we call ‘manuscript,’ so it’s not a standardized policy. Many of the policy’s terms are negotiated with respect to the available coverage,” Ron Peppe, vice president of legal services and human resources at Canam Steel Corp., told Bloomberg BNA on March 2. Canam Steel, a Maryland-based manufacturer of steel construction components, is the U.S. subsidiary of the Canam Group Inc., a French-Canadian corporation.
Insurers and carriers can limit and exclude coverage on certain employment-related claims, such as wage and hour claims and class action lawsuits, added Peppe.
Conference on EPLI Market Trends, Coverage and Claims
Bloomberg BNA interviewed Peppe in New York City after he spoke on a panel comprised of in-house labor and employment attorneys at the 22nd national conference on employment practices liability insurance sponsored by the American Conference Institute.
The two-day conference presented sessions featuring insurers, carriers, brokers, corporate counsel and management-side attorneys addressing EPLI market trends, coverage and claims.
Less than 40 percent of companies hold an EPLI policy, and premiums and prices have stabilized overall after rates increased during the recession, according to the conference speakers.
Employer interest in coverage typically is sparked by downsizing, mergers and acquisitions, which often lead to employment claims, and knowledge of a competitor facing a large monetary claim, insurers said. Rates and premiums are set by assessing factors such as the number of employees, location of the business, claims history and unionized workforce.
Interestingly, law firms and car dealerships fall under the category of high-risk employers for EPLI coverage because male-dominated professions tend to generate sex discrimination and sexual harassment claims that can result in hefty financial rewards and settlements, attendees were told.
Bloomberg BNA: Under an EPLI policy, the insurer has the authority to decide which law firms the employer can hire to defend against a claim of discrimination or adverse employment action. How do you deal with that situation.
Peppe: The standard with many policies is that the insurer has a list of what it calls “panel attorneys” from which the employer is instructed to select counsel. Some insurers will appoint the law firm that will litigate the claim.
Many employers, including Canam Steel, will try to negotiate with the EPLI insurer the right to select our own counsel to oversee the litigation, or at least try to negotiate a little bit of flexibility under the policy’s terms on selecting legal representation.
We want to have it so that the company can pick a lawyer or law firm that we have worked with on a regular basis and feel comfortable with. The insurance company, meanwhile, wants legal counsel that it has an agreement with on cost, time and communication. It’s a balancing act each time you receive a claim that is covered under the EPLI policy.
Bloomberg BNA: What are the main misconceptions that some chief executive and financial officers have about EPLI coverage?
Peppe: One big issue is that some CEOs and CFOs will think that since the company has purchased an EPLI policy, then it has coverage for everything. EPLI policies are complicated and can include many additions and exclusions.
First, you have to determine whether certain claims are covered under your policy, which goes into negotiating the coverage. Most EPLI polices are not standardized, so all of the terms are negotiated. That’s a big issue when it comes to educating senior executives about EPLI coverage.
Bloomberg BNA: Describe your duties or role in dealing with a formal claim alleging discrimination or adverse employment action that may be covered under an EPLI policy.
Peppe: The in-house counsel is typically the first one to hear about a formal claim. It’s our job to make sure that we gather all of the relevant information pertaining to a claim or a complaint. We also have to put both our EPLI carrier and broker on notice. You don’t get coverage if you don’t timely notify them.
Additionally, the general counsel team will investigate the claim to figure out what really happened. Quite often there is a much bigger issue that you don’t know about until you are faced with a claim.
Bloomberg BNA: As in-house counsel, what are you looking for when it comes to an EPLI carrier and policy for the company?
Peppe: First, I am looking for a carrier that can offer me an EPLI policy that I can understand. I want to know up front what’s included in the coverage. I don’t want any surprises about claims that I thought were covered, but actually aren’t. I am also considering whether the carrier can provide us with good communication throughout the litigation and consistently stand behind us as we defend the claim.
Also, the Equal Employment Opportunity Commission’s enforcement and current states’ labor laws are always evolving. Brokers and carriers can play a role in helping in-house counsel to stay on top of federal and state developments related to labor and employment laws. They can inform us about trends so that we can audit our internal policies and practices to avoid claims in the first place.
Bloomberg BNA: How has coverage changed since EPLI has hit the market?
Peppe: It’s a relatively new product that has been on the market for about 20 years. When we first started to purchase policies, the deductibles were very low, and they covered most claims. Now, the coverage is constantly changing because the insurers are keeping their eyes on the money.
For example, the law under the Americans with Disabilities Act have evolved. Before the 2008 amendments to the ADA, companies won most ADA lawsuits. They don’t under the amended ADA. Consequently, carriers had to go back to change their policies in response to the amendments.
You just can’t buy insurance anymore that covers everything. It’s tough to get coverage for expensive litigation.
Bloomberg BNA: Any final thoughts about EPLI claims and coverage?
Peppe: EPLI is one of those valuable policies, but many business folks don’t know about it until they need it.
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