Employment practices liability insurance (EPLI) is a type of insurance coverage that protects businesses from financial consequences associated with employment-related lawsuits. But, 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 you purchase 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. Make sure you know what you’re getting when you purchase a policy, and more importantly, that the policy covers losses that pose a true risk to your business.
2. Selection of Counsel
Before you buy a policy, you’ll also want to make sure you know what rights to retain counsel you have 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 you would like a specific lawyer or firm to represent your business in the event of an employment lawsuit, try negotiating for your 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.