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Three Things to Consider Before Purchasing Employment Practices Liability Insurance (EPLI)

By Kristine Sova
www.sovalaw.com

Employment practices liability insurance (EPLI) is a type of insurance coverage that protects businesses from financial consequences associated with employment-related lawsuits. However, as is the case with most insurance policies, EPLI policies vary wildly in terms of price and breadth of coverage. Below are three things to consider before a company purchases an EPLI policy.

1. Claims and Losses

Most policies restrict coverage to harassment and discrimination claims, and typically exclude coverage for claims involving wage-and-hour laws. In addition, while many policies cover damages like back pay, many disclaim coverage for losses like front pay and punitive damages, both of which are often very high. It's important to make sure that counsel knows what the company is getting when a policy is purchased, and more importantly, that the policy covers losses that post a true risk to the business.

2. Selection of Counsel

Before a business purchases a policy, it will also want to make sure to know what rights to retain insurance-related counsel it has under the policy. Many policies give the insurance company the right to designate counsel of its own choosing. Policies that don't often limit insured employers to selecting defense counsel from a pre-approved list of lawyers. If a business would like a specific lawyer or firm to represent it in the event of an employment lawsuit, one should try negotiating for a choice of counsel before purchasing the policy.

3. Consent to Settle

Many EPLI policies require insured employers to consent to settle any claim by not unreasonably withholding consent. Keep in mind that insurance companies often wish to settle claims, reasoning that they can do so for less than the anticipated defense costs plus potential damages that could be awarded in a lawsuit, whereas insured employers usually do not want to settle claims because they do not want to set a precedent for settlement and open a floodgate of litigation against the business. Naturally, disagreements arise between insurance companies and insured employers over whether a matter should be settled. For this reason, many policies include some form of hammer clause - which essentially renders the insured employer financially responsible should it go against the insurance company's recommendation to settle - to compel insured employers to settle cases.

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This page contains a single entry from the blog posted on June 10, 2015 10:10 AM.

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