EPL Facts You Need to Know

Employment practices liability (EPL) insurance protects the owners, directors, staff and the organization as a whole from damages arising out of claims. EPL claims can include a wide range of allegations, but most involve wrongful termination, sexual harassment, discrimination or retaliation.

Often an insurance company will deny coverage for an EPL claim due to late notice. This issue can usually be traced back to a simple and correctable cause: not knowing what constitutes a claim. Many are unaware that an Equal Employment Opportunity Commission (EEOC) charge, a complaint filed with an equivalent state agency or when a staff member informs their supervisor of a harassment incident and demands that something be done, may be considered claims under many EPL policies. These charges or complaints trigger the duty to report them promptly to the insurance company. Most EPL insurance policies are claims-made and reported policies. Not reporting it can result in forfeiture of coverage, as most insurance companies require claims to be reported during the policy period in which the charge is first made against the insured.

Most EPL charges center on allegations of discrimination or harassment. Claims are often not reported, because the organization believes that an EEOC or state charge is frivolous and presents little or no exposure. In addition, the charges are usually embarrassing and damaging to both the individuals and the organization. They often present the potential for significant damages both in court and public opinion regardless of whether they have merit or not.  An organization may want to ignore EPL claims, or at least be quiet about them, in the hopes that they might go away. However, if a claim is not reported in time, all coverage related to that claim will likely be forfeited, including coverage for defense costs as well as any possible settlement.

To ensure your organization avoids denial of coverage due to late notice, know how your EPL policy defines a claim and the time frame in which claims must be reported. With most EPL policies, the definition of a claim includes: a written demand for damages, a lawsuit or a charge filed with the EEOC or a state agency. All of these must be reported within the time frames described in your policy. Reporting every claim really means every claim. You must report even those claims which might fall within your policy’s deductible or retention. Once you understand your policy’s definition of claim, the next step is to be aware of your policy’s reporting provisions. Most EPL policies include two reporting time frames, both of which have to be met. The first time frame is either the end of the policy period or some defined period, such as 30, 60 or 90 days after the end of the policy period. Note: this time frame is an absolute and, if the claim is not reported within that period, an insurance company will deny coverage. The second time frame requires reporting the claim “as soon as practicable.” Many times this provision is customized for an organization by including language in the policy that the claim must be reported “as soon as practicable” after key people (e.g., the organization’s general counsel or manager) first become aware of the claim. Often this is called a delayed claims trigger.

Developing a solid relationship and open lines of communication between your legal, human resources and management areas will help prevent claims from slipping through the cracks. Human resources and management should be aware of your EPL policy’s definition of claim. Each of them should notify the other when any of them become aware of a possible employment-related situation, receive a demand letter, a lawsuit or an EEOC charge.

The easiest way to make the most of the coverage under your EPL policy and to avoid a claim being denied due to late notice is to gain a solid understanding of how a claim is defined under your policy and to be aware of your policy’s reporting requirements. Knowing and abiding by these two critical conditions may protect your business from a claim denial.