As most employers who have defended against an employment lawsuit know, there is no such thing as a simple or straightforward employment lawsuit. Present or former employees filing these lawsuits frequently assert a broad range of statutory and common law claims that may result in large damage awards, including punitive damages and attorneys fees. The trend to assert as many claims as possible is driven by the legal need to state all potentially viable claims when commencing a lawsuit so as not to waive them. It is also driven by the practical desire to gain leverage against a defendant employer. For example, a “simple” wage and hour dispute can quickly evolve into a lawsuit alleging emotional distress, breach of contract, and even unfair business practices. As a result of this trend, many employers now purchase Employment Practices Liability Insurance (“EPLI”) to protect against the risk of a major claim.
EPLI policies are generally offered as either a stand-alone policy or as an endorsement to an employer’s existing liability policy. These policies vary in their scope of coverage, terms, and conditions. Some policies provide for indemnity against damage awards and for a defense against covered claims, while others offer only reimbursement of defense costs with no indemnity. Some policies limit coverage to wrongful termination claims, while others specifically cover statutory claims, such as failure to accommodate claims under the Americans with Disabilities Act. EPLI policies are further divided among three types: (1) “occurrence” policies, (2) “claims made” policies, and (3) “tail” coverage policies.
Coverage under an “occurrence” EPLI policy is determined by incidents or events that arise during the coverage period. While occurrence policies are usually the most expensive, they are also the most beneficial because they allow the reporting of claims at any time and thereby cover the employer even where claims are submitted after the policy expires.
In contrast, a “claims made” EPLI policy, while generally more affordable, offers limited coverage. The claim must be reported to the insurer within the period in which the policy is effective. These policies are also generally less beneficial because they limit coverage to a specific amount for all claims, whereas occurrence policies only limit coverage for each occurrence.
Finally, “tail coverage” is optional coverage that protects against claims filed after a “claims” policy has been canceled or expires. The need for tail coverage usually arises when an employer closes its business.
Whether an employer should purchase EPLI coverage depends on many factors. A key factor is the size of the business. Larger employers may face a greater risk that workplace problems will arise, are more likely to be seen by employees as having “deep pockets,” and are therefore more likely to become a defendant in an employment lawsuit. As the threat of employment lawsuits rises with an increase in the number of employees and size of the business, so do the corresponding benefits of EPLI coverage. If an employer has more than 50 employees, EPLI coverage is highly recommended. This is because the 50-employee threshold exposes employers to potential liability under the Family and Medical Leave Act, California Family Rights Act, and sexual harassment training requirements. Given the litigious climate and the steady increase in employee-friendly legislation, all California employers, regardless of size, should seriously consider purchasing EPLI coverage.
For more information on this or related topics,
contact Chris Panetta or Dennis McCarthy at (831) 373-1241.
– – – – – – – – – – – – – – – – – – – – – – – – – –
Back to Newsletter Menu