The other day an HR consultant asked me when should a client file a potential EPLI claim. EPLI policy is short for employment practices liability insurance and the claim in question had to do with some type of lawsuit or threat of lawsuit from an employee.
So back to the question of when you should go to your insurer or your broker and file a claim when a potential employment action is brewing.
The answer is quickly. And here are my two reasons for saying that.
First, Employment Practice Liability policies include language that says that for a claim to be covered under the policy, any potential threat or notice of a potential claim should be reported to the insurer as soon as practicable.
The second reason is that t your EPLI policy includes coverage for your defense costs – meaning legal fees to defend you against these types of threats. There’s no good reason to hire your own attorney to deal with a potential claim and pay them out of pocket and then later turn the claim over to your insurer. In fact, doing so could jeopardize your claim due to the complex policy wording around claims handling.
Now you may be thinking – I’ve got a $10,000 or $25,000 deductible and I think this is a frivolous lawsuit, why shouldn’t I give it to my attorney to handle and it’ll cost me a lot less than my deductible. Doesn’t that make sense?
Economically on the face of it, it may make sense, but strategically I don’t think it does. Why?
I’ve seen clients do this and 4 or 5 months later they turnaround, contact me and tell me they’re jammed up. Meaning this simple claim they thought could be dismissed quickly and cheaply has morphed into a real problem. Now what do we do?
In most cases I’m going to speak with the insurance company, tell them what’s going on and file a formal notice of claim and keep my fingers crossed that they don’t decline it for late notice, or prejudice. A lot of what happens will be based on the severity of the claim, the lateness of notice, and the relationship that exists with the client, insurer, and us.
While we do get many of these situations covered, it’s important to recognize that you don’t want to be in this position, it’s not comfortable and it can cost you a lot of money if litigation is going sideways.
You may also say, “well, isn’t it bad to report claims if nothing comes of it? Won’t my premiums go up?”
I understand this concern, we’ve been conditioned to believe that filing insurance claims are bad from our personal auto insurance experiences, but here’s the rub – unlike a fender bender where you can pay for small damages out of pocket, an employment claim can blossom into a def-con 5 event and it’s better to handle it by the book then be surprised in 4 or 5 months that your insurer isn’t going to pick up your defense.
The other point I want to make here is that if you report a circumstance that you think could lead to a claim and nothing happens…. then you’re likely not going to face a rate increase on your renewal.
If you file an EPLI policy claim and litigation ensues and it’s dismissed with little to no payment or it’s under your deductible you still may be able to negotiate a flat renewal.
Here’s the bottom line, EPLI policies whether they are stand-alone policies or combined in your D&O policy are complex. You should be working with a skilled broker like The Coyle Group that handles these types of policies every day so you get a policy tailored to your needs, and expert advocacy when claims happen. Leaving this up to a generalist insurance broker is a mistake, a big mistake and buying a policy off the shelf online from a faceless company call center is an even bigger mistake.
Need help with EPLI or other forms of business insurance – give me a call or email me.
I’d love to hear from you.
Thanks!
