In California, employment practices liability insurance (EPLI) affects labor claims by providing you with a source of compensation and by representing your employer throughout the claim. EPLI covers many, but not all, of the employment disputes that lead to labor claims in California.
The key takeaway is this: If you win certain types of labor claims against your employer, and the company carries EPLI, you are more likely to be able to collect on the claims because they are backed by a “deep pocket” insurance company.
How does EPLI insurance work?
EPLI is a type of liability insurance that employers and California business owners can purchase for their company. It is a form of business insurance that covers many of the situations that can lead to employment-related lawsuits. It is often sold as an add-on policy to a business owner’s policy (BOP) or to a professional liability or general liability policy. However, it is not required and not all employers choose to carry it.
Like all forms of liability insurance services, EPLI is a binding contract. In it, the employer and the insurance company make the following agreement:
- the employer will pay regular premium payments to the insurance company, and
- the insurance company will cover certain types of employment-related claims that are made against the employer.
The types of claims that will be covered by an employment practices liability insurance policy will depend on the policy. Some of the most common types of claims that EPLI will cover are those that allege the following types of violations of employment law:
- harassment, including some types of sexual harassment,
- discrimination, including age discrimination,
- wrongful termination,
- FMLA violations,
- workplace retaliation,
- defamation,
- infliction of emotional distress,
- invasion of privacy, and
- breach of contract, including a breach of the employment contract.
While many of these claims are brought by the employer’s current or former employees, they can also be brought by:
- customers,
- clients,
- business visitors,
- independent contractors, or
- vendors.
If the EPL insurance policy covers the claim that is being made against the employer, the insurance company will generally:
- manage the employer’s legal defense,
- negotiate with the plaintiff,
- decide when or whether to settle the claim, and for how much, and
- pay for any verdict or settlement in the case, as well as for the court costs and legal fees that are associated with the defense.
The amount that the EPLI insurer will pay will be up to the policy’s limits. Employers can choose how high the limit will be on their policy. Some EPLI policies provide up to $1,000,000 in coverage. These policies require higher premium payments, though, so many employers choose an insurance quote with lower policy limits. Many do not carry EPLI at all.
What does this mean for my labor claims?
If you sue your employer or a business, they carry EPLI insurance, and the insurance policy covers your claim, then it will alter your case in several ways. The 2 most important are:
- any compensation you recover would come from the insurance company, up to the policy limits, and
- the insurance company will be in charge of the defense, rather than your employer.
Compensation will come from insurance coverage
The good news is that EPLI coverage means that there is a dedicated source of money for your compensation. This makes it more likely that you will collect on any settlement or verdict.
If you file a lawsuit against a business or your employer and there is no EPLI coverage, the employer will pay whatever compensation you receive out of its own accounts. While many businesses will have more assets than individual people, some will not. This is especially true of small businesses. In these cases, you may struggle to recover what you deserve.
If there is EPLI coverage, then you will have access to the insurance money. This is a substantial source of compensation that is only subject to the policy’s limits. If you reach a settlement or win a verdict, the insurer will pay you from this source of funding. This can ensure that you receive what you deserve and what you are owed. If it proves to be inadequate, you can still pursue the business or employer, itself.
Insurer will manage the defense
If EPLI coverage applies to your claims, then the insurance agency will manage the defense rather than the business or employer. This has several different implications, including:
- being more willing to settle the case out-of-court,
- being less concerned with the bad reputation that settling the case may have on the business,
- using defense lawyers that protect the insurance company’s financial interests rather than those of the business, and
- hiring defense lawyers from outside the employer’s legal department who likely have less insider knowledge of the defendant’s business practices.
Generally, these differences can make for a quicker settlement. The settlement may also be more likely to be larger because it would not be paid by an employer with few assets available. However, that is not always the case. Getting the legal advice of a lawyer can help you prepare for a lawsuit.
Are all EPLI policies the same?
No, EPLI policies are very customizable. Employers and EPLI insurers often negotiate the precise terms in the policy. Employers tend to do this more than other types of insurance policyholders because they have a better idea of what their business risks are.
Because of this, similar claims against different employers may have different outcomes for EPLI coverage.
What does EPLI insurance coverage typically NOT cover?
While employers frequently negotiate the limits of their employment practices liability coverage, there are several types of employment-related issues that EPLI tends to not cover. In California, some of the most common types of these exclusions are for:
- intentional or willful acts, which cannot be covered by insurance,1
- workers’ compensation,
- class actions,
- wage and hour lawsuits, and
- claims brought under the California Private Attorney General Act (PAGA).
Some of these limitations are significant. Many EPLI insurers use them to deny coverage and escape liability for the claim.
For example: Mark demands sexual favors from female job applicants if they want to be hired. One of these applicants files a lawsuit against Mark’s employer for quid-pro-quo sexual harassment. The employer has EPLI coverage. However, the employer’s claim for coverage is denied – the insurance agent says that Mark’s conduct was intentional and cannot be covered.
However, with the exception of workers’ comp, some employers have managed to negotiate EPLI policies that do cover these claims. Workers’ compensation, on the other hand, has its own particular type of insurance coverage.
The best way to determine whether there is insurance coverage available is to talk to a lawyer.
