If you own or manage an organization and have not experienced an employee claim, count yourself lucky—and know that the chances are very good that your luck will change.
Many employers purchase Employment Practices Liability Insurance (EPLI) because general business insurance policies exclude employment-related claims for issues such as discrimination, harassment and wrongful termination. Many EPLI policies do not, however, cover commonly asserted claims such as wage and hour violations or statutory penalties. The issues are complicated enough that decisions on EPLI require the assistance of two experts: a knowledgeable and trusted insurance broker and an experienced employment defense attorney. The insurance broker will guide you through the various policy options available and provide a wealth of risk-management information. The defense attorney will advise on the real-world impact a particular policy will have when an employment claim arises.
If you purchase EPLI, you should prepare for employment claims before they are even asserted, by following these steps:
- Select Defense Counsel in Advance. If you already use trusted employment law counsel, your carrier may allow you to designate your chosen law firm at the time the policy is purchased or renewed. Some policies allow the insured to select its own counsel without such pre-designation. Asking the right questions of your broker and specifying at the outset the employment lawyer you want is the best way to ensure that you get the defense counsel of your choice.
- Train Staff on Claims Recognition. Train key personnel to recognize a “claim” as it is defined under the EPLI policy. What constitutes a “claim” is generally defined broadly. A “claim” may even include pre-lawsuit claims, such as a discrimination complaint filed at a governmental agency like the California Department of Fair Employment and Housing. Even a “demand” letter from a threatening employee or lawyer may constitute a claim. As policies change from year to year, the definition of a claim may also change. Key personnel should know what to do when a potential claim is spotted, including the who, what and when of communicating with the insurance broker or carrier.
- Develop Protocol for Receipt and Processing of Claims. It is a good idea to have a specific person designated to whom all “claims” are promptly forwarded. The protocol should also include things such as identifying the name of the employee who received the claim and the date, time and how the claim was received. It is critical to ensure that a potentially covered claim is properly and quickly processed. Communication problems can arise inside organizations because finance and operations executives, who were involved in buying the EPLI policy, tend to be knowledgeable about the terms of the EPLI policy, while human resources personnel tend to be the first to know that a claim has been filed.
Be Thoughtful and Precise in “Tendering” Claims to the Carrier. Once a claim arises, carefully consider the requirements in the policy for tendering the claim. This may involve discussions with legal counsel regarding the pros and cons of tendering a particular claim at all and will definitely include advice on how and what to communicate with the carrier. Careful consideration cannot result in much delay. EPLI policies typically require very prompt communication of claims and potential claims. Follow carefully the means and timing of “tendering,” i.e., providing written notice to the carrier, as stated in the policy. A copy of the lawsuit, administrative charge or “demand” letter should accompany the tender. Follow up to ensure that the carrier has received the claim and accepted it.
As a general rule, attorneys' fees and costs incurred to defend a tendered claim may not “count” against the insured's retention (deductible) until the date of tender. If you incur attorneys’ fees and costs before the claim is tendered to the carrier, your company will likely have to pay those fees plus the full amount of the retention. Worse yet, if a claim is not tendered in the manner and time frame required by the policy, the claim may be denied.
The great majority of employers in California should at least seriously consider the addition of an EPLI policy, but not just any policy will do. Without the expert guidance of a knowledgeable broker and employment counsel, you might be shelling out premium dollars that do not effectively achieve your risk-management objectives. Once you have a policy, the development of effective protocols for handling claims is essential. Those protocols will ensure that claims are not denied and that they are positioned to be effectively defended.