Three Considerations Before Purchasing Employment Practices Liability Insurance

By:
Kristine A. Sova
Published Date:
Jul 1, 2015

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 elements to consider before purchasing an EPLI policy.

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 also disclaim coverage for certain losses, such as front pay and punitive damages, both of which are often very high. Tax preparers should ensure that clients know the terms of a policy they want to purchase and, more importantly, that the policy covers losses that pose a true risk to a client’s business.

Selection of Counsel

Before buying a policy, taxpayers should familiarize themselves with any rights to retain counsel they 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 preapproved list of lawyers. Taxpayers who would like a specific lawyer or firm to represent their business in the event of an employment lawsuit, should try negotiating for their choice of counsel before purchasing the policy.

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; on the other hand, 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—in order to compel insured employers to settle cases.


Kristine A. Sova, Esq.Kristine A. Sova, Esq. is a solo practitioner representing employers in labor and employment law matters. A firm believer in the old adage that an ounce of prevention is worth a pound of cure, Kristine focuses her practice on counseling employers on ways to avoid litigation through business decisions. She can be contacted by email at kristine@sovalaw.com or by phone at 646-558-2296.

This article was originally published on the blog of the Law Office of Kristine A. Sova (www.sovalaw.com/blog). Reprinted with permission.

 
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