Employment related claims are some of the most common legal matters experienced by organisations. In these situations EPL coverage can provide an entity with much needed support.
An organisation and its management face employment related exposures continuously, as directors, officers and the employees they manage interact on a daily basis, working together to achieve a common goal.
For the most part the forge successful working relationships. However, from time to time the dynamic can change, with a breakdown in communication leading to frustration and strained relationships.
In not handled properly internal disputes can lead to a claim against an organisation or its management. The subsequent claim defence and settlement costs can be considerable, and have a significant impact on the financial health of all involved.
The risks associated with employing staff
Directors and officers are responsible for ensuring that employees have access to a safe and culturally sensitive workplace, free of harassment and bullying.
An organisation engaging labour in any capacity faces the prospect of an employment related claim. It’s not only full time and part time staff that present an exposure, as contractors and volunteers have the same rights to acceptable working conditions.
Throw into the mix the trend that modern employees are becoming increasingly aware of their rights, and the ease in which they have access to legal advice, and you have an environment primed for confrontation.
Even with formal employment policies and procedures in place, employers often find that disgruntled staff will choose to litigate if they feel they have received unjust treatment.
These employment related exposures exist during a staff member’s period of employment, following their termination, or even before they’ve been hired.
If a employee feels mistreated during any phase of their engagement, a claim can be bought by an individual, groups of employees engaging in class action, or by employment representatives such as trade unions.
Common claims can include allegations of
- Wrongful dismissal or constructive termination
- Sexual harassment, unlawful discrimination or bullying
- Invasion of privacy
- Infliction of emotional distress or mental anguish
- Deprivation of career opportunity
- Failure to employ or promote
- Negative performance evaluation, disciplinary action, demotion or reassignment
- Breach of any oral or written employment contract, unfair contract
- False or misleading representations in relation to the terms of employment
- Violation of any employment legislation
Coverage available under stand-alone D&O
The subsequent claim defence and settlement costs can be considerable, and have a significant impact on the financial health of an organisation.
Under a stand-alone D&O policy, individual directors and officers are automatically covered for any employment related claims which are made *personally* against them.
The organisation, on the other hand, is responsible for its own liability and subsequent claim costs. Although, it will be covered for the costs incurred on behalf of management by a D&O policy’s Side-B coverage, also known as corporate reimbursement.
That being said, the organisational can insure its own liability by purchasing employment practices liability.
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Employment practices liability insurance
Employment practices liability Insurance, also known as EPL, provides an organisation with protection if it is listed as defendant in an action, in addition to the directors and officers involved.
EPL coverage can often be added as an extension to an organisation’s existing D&O policy. However, as this effectively increases the risk borne by the insurer, the policyholder is required to pay extra premium for this privilege.
Once established, the organisations’s D&O insurance policy will include entity coverage for any claims related to employment, provided the total cost of the claim exceeds the EPL section’s self-insured retention; the excess first paid by the organisation, before the policy will respond.
The inclusion of employment practices liability provides a convenient and cost effective solution for insuring an organisation’s employment liability exposures, however it can also present some challenges.
Disadvantages of combining D&O and EPL coverage
Despite the obvious benefits of including EPL cover within a D&O insurance policy, it will have an impact on the policy’s limit of liability.
When D&O and EPL coverage are bundled under one policy, they will often share the limit of liability. As a result, as claims are made against an organisation the coverage available to its directors and officers will gradually be eroded.
The erosion of a policy’s limit can lead to exhaustion of the coverage intended for protecting the organisation’s executives, leaving their personal assets exposed.
A stand-alone EPL policy may be a better option
To remove these conflicting interests, organisations with high employment liability exposure may prefer to establish a stand-alone EPL policy.
A policy dedicated to protecting an organisation from EPL claims removes issues surrounding a shared limit of liability, thereby ensuring that that the coverage afforded to directors and officers is not compromised.
Additionally, organisations may find that a stand-alone solution can offer slightly broader coverage for the entity.