EPLI Coverage and Timely Reporting of Allegations

March 26, 2024

Employment Practices Liability Insurance (EPLI) policies provide coverage for claims made by employees alleging various wrongful employment practices, such as discrimination, harassment, wrongful termination, and retaliation. Here are how these policies typically work:

The average EPLI policy will cover the cost of damages, settlements, and judgments associated with covered claims. These policies may also provide coverage for defense costs, including attorney fees, court costs, and other legal expenses.  However, defense expenses such as these are often within the stated limit of liability and not in addition to the stated limit.

Coverage is usually provided for claims arising from various employment-related issues, including but not limited to:

   - Discrimination based on age, race, gender, disability, or other protected characteristics.

   - Sexual harassment or other forms of workplace harassment.

   - Wrongful termination or demotion.

   - Retaliation against employees for exercising their legal rights.

   - Failure to promote or provide equal opportunities.

   - Violation of employment laws or regulations.

Like other insurance policies, EPLI policies have coverage limits, which represent the maximum amount the insurer will pay for covered claims. Deductibles may also apply, requiring the insured (the employer) to pay a specified amount as part of the overall insurance obligation.

Most EPLI policies are written on a Claims Made and Reported basis, which means claims must be reported in the policy period in which the allegations were made.  This means claims need to be reported immediately upon an allegation first being made.  It is essential for an employer to notify their broker or insurance company as soon as they become aware of a potential claim or lawsuit alleging wrongful employment practices. The insurer will typically assign a claims adjuster or specialist to investigate the claim and determine coverage eligibility. It is essential to provide the insurer with all relevant information and documentation related to the claim. Reported allegations and potential lawsuits don’t always turn into claims; however, allegations not reported during the policy period in which they were made that do turn into claims, will likely not be covered by your EPLI policy. 

EPLI policies often provide coverage for legal defense costs, including hiring attorneys to represent the insured in court proceedings or settlement negotiations. The insurer may have preferred legal providers or panels of attorneys experienced in employment law matters.

If the claim is resolved through settlement or results in a judgment against the insured, the EPLI policy will typically cover the costs, up to the policy limits. However, any settlements or judgments may be subject to the deductible specified in the policy.

It is crucial for employers to familiarize themselves with the notification requirements outlined in their EPLI policies. Failing to report claims in a timely manner could jeopardize coverage or result in coverage denials.

In summary, EPLI policies provide valuable protection for employers facing claims related to wrongful employment practices. Promptly reporting claims to the insurer and complying with policy requirements are essential to maximizing coverage benefits.

In order to minimize the potential of experiencing an EPLI claim, or to put yourself in the best light if an EPLI claim arises, it is recommended to consider training supervisors and managers on the ADA, EEOC, and FMLA, along with Sexual Harassment training for you entire staff, as this is where most of the EPLI allegations originate.  If you would like more information on EPLI or supervisor training, please contact Gary Thornhill or Kevin Cook at 317-464-5000, garyt@mcgowaninsgrp.com, or kevinc@mcgowaninsgrp.com.