Employment Practices Liability Insurance

The core insuring agreement responds to a claim alleging a wrongful employment practice. The definition is a list, and the usual entries are:

• Discrimination in hiring, pay, discipline, promotion or termination on any basis the law protects, such as race, sex, age, disability, religion or national origin.
• Harassment, including sexual harassment and a hostile work environment, whether the accused is a manager, a coworker or, under some forms, a vendor or guest.
• Retaliation against an employee who complained, filed a charge, took protected leave or reported a safety or care concern.
• Wrongful termination, including constructive discharge and breach of an implied promise of continued employment.
• Failure to hire or promote, negligent evaluation, and wrongful discipline or demotion.

A claim is defined broadly on a good form: a written demand for money, a lawsuit, an arbitration demand, and an administrative charge filed with the EEOC or a state agency. That last item matters because most employment disputes start as an agency charge, and defense of a charge costs real money before any lawsuit is filed.

Third party coverage is an extension, not a default. When it is added, the policy responds to discrimination or harassment claims made by customers, guests, residents, applicants for housing and vendors. For a property owner the most common third party claim is a fair housing complaint, which can name the owner, the management company and the leasing agent together.

Insureds normally include the entity, its directors and officers, its employees, and often leased and temporary workers.

Every EPLI form carves out claims that belong on another policy or that insurers will not take at all:

• Bodily injury and property damage. Physical injury is left to the general liability policy for premises injuries, with a carve back on most forms for emotional distress and mental anguish arising from the employment claim itself.
• Workers compensation and similar statutes. An employee hurt on the job is a claim for workers compensation benefits and employers liability, not EPLI. Retaliation for filing a compensation claim is usually covered, which is a distinction worth confirming in the form.
• Wage and hour claims. Unpaid overtime, misclassification, meal and rest breaks, tip pooling and off the clock work are excluded, sometimes with a defense only sublimit. This is the exclusion that surprises hospitality employers most often.
• Benefit plan and statutory obligations. ERISA fiduciary claims, WARN Act notice obligations for mass layoffs, COBRA, the National Labor Relations Act, and unemployment insurance are excluded, though some forms cover retaliation under them.
• Contractual liability. Amounts owed under a written employment contract or severance agreement, as opposed to damages for a wrongful act.
• Costs of compliance. The cost of hiring, reinstating or promoting someone, or of making physical changes to a building to meet accessibility rules, is not damages.
• Prior and pending matters. Any charge, demand or situation known before the policy began, which the application asks about directly.

Punitive damages are covered on some forms where the law of the state allows it to be insured, often through a most favorable venue wording. Fines and penalties are excluded almost everywhere.

EPLI is priced on headcount, split by full time, part time and seasonal staff, then adjusted for the states where those employees work, turnover, prior claims, and the human resources practices described in the application. The same headcount costs more in a state where employees bring more charges and suits, so a firm with staff in several states is rated state by state.

The retention is the amount the employer pays on each claim before the insurer pays, and it applies to defense as well as settlement. A small employer may carry a retention of a few thousand dollars, while a multi-state hotel or senior living group will usually see five or six figures, sometimes with a higher retention for claims in specific states or for class actions.

Three features of the limit deserve attention before the price:

• Defense inside the limit. Defense costs are paid out of the same limit as settlements and judgments on nearly every form, so a one million dollar limit shrinks with every deposition.
• The claims made trigger. The policy covers claims first made during the policy period for wrongful acts after the retroactive date. Moving insurers without carrying the retroactive date forward, or letting coverage lapse, leaves earlier conduct uninsured. Prior acts coverage is negotiated, and full prior acts is worth keeping once you have it.
• Consent to settle and the hammer clause. The insurer needs your consent to settle, but if you refuse a settlement it recommends, a hammer clause can cap what it pays at the amount it could have settled for, plus a share of what comes after. A soft hammer splits the excess between you and the insurer at a percentage stated in the policy; a full hammer leaves all of it to you.

Limits for property operators commonly range from one to five million dollars, chosen by headcount, the number of states, and whether third party and fair housing claims share the same aggregate as employee claims.

An EPLI application reads like a human resources audit, and the answers move the price and the retention more than the headcount does:

• Employee counts by state and by full time, part time, seasonal and leased status, with turnover for the last twelve months.
• Whether there is a written handbook, reviewed by employment counsel, with an anti harassment policy, a complaint procedure that bypasses the direct supervisor, and a signed acknowledgment from each employee.
• Whether managers are trained on harassment and discrimination, and how often.
• Whether terminations are reviewed by human resources or counsel before they happen.
• Layoffs, closures, reductions in force or acquisitions planned in the next year.
• Every charge, demand letter and lawsuit over five years, with the outcome and the amount paid.
• For third party coverage, the tenant screening criteria, the process for reasonable accommodation requests, and any fair housing complaints or testing results.

Property management creates an underwriting question of its own: who is the employer. On-site managers, leasing agents and maintenance staff may be employed by the management firm while working at buildings owned by separate entities, and a claim often names both as joint employers. Underwriters will ask how payroll and supervision are split, and the owner's policy and the manager's policy should be read together so that each one responds to the claims it is meant for and neither assumes the other will.

Most claims begin with a letter from an attorney or a charge filed with an agency rather than a lawsuit. Under federal law an employee generally has to file a charge with the EEOC within 180 calendar days of the discrimination, extended to 300 days where a state or local agency enforces a similar law, so a charge can arrive well after the employee has left. A fair housing complaint to HUD follows its own clock: HUD asks that a housing discrimination allegation be filed within one year of the last date of the alleged discrimination.

Report the charge or demand to the insurer when it arrives, not when it becomes a lawsuit. Late reporting is the most common reason an otherwise covered claim is denied on a claims made form, and the reporting window after expiration is short. Many policies also allow a notice of circumstances, which locks a potential claim into the current policy year before anything is filed.

Once accepted, the insurer appoints defense counsel from its panel, or approves your own at its rates. The panel firm responds to the agency, gathers personnel files and handles mediation, which is where most cases resolve. If a settlement offer comes, the consent and hammer provisions decide who controls the decision. We help clients report the claim correctly the first time and keep the file moving, and if the insurer's position looks wrong, we will tell you so and push back on your behalf.

Any employer with staff can face a charge, but the exposure is heaviest where the workforce is large, hourly and turning over quickly.

Hotels with large housekeeping and front desk teams combine high turnover, night shifts, tipped staff and constant contact with guests. Harassment claims involving guests or managers are frequent, wage claims around tips and breaks sit outside the policy, and third party coverage matters because guests can allege discrimination at check-in or in how they were treated on the property.

Senior living communities staffed around the clock by caregivers see scheduling disputes, disability and leave claims, and retaliation claims from staff who reported a care concern and were later disciplined.

Property management firms with on-site staff at many owners' buildings carry employee claims and third party claims at once: the leasing agent who alleges harassment, and the applicant who alleges the leasing agent screened them out. The management agreement should say whose EPLI responds to each.

Apartment owners facing fair housing complaints see claims over screening criteria, occupancy limits, assistance animal requests and the way rules are enforced. Condo and townhouse associations enforcing community rules face the same complaints from owners and residents, and for an association the claim may fall under its directors and officers policy, a third party EPLI extension, or both, depending on the wording.

• No third party coverage. A policy covering employees only, held by an owner whose largest exposure is fair housing complaints from applicants and residents.
• Fair housing claims falling between policies. The owner's EPLI, the association's D&O and the manager's errors and omissions policy each assuming another will respond. Our guide to professional liability and manager errors and omissions covers the manager's side.
• A lost retroactive date. A change of insurer or a lapse that resets prior acts, leaving last year's terminations uninsured.
• Wage and hour left unaddressed. No defense sublimit for the claim type that hospitality and care employers see most.
• A limit sized for one location. A single aggregate shared across many properties and employers in a group, with no thought about a class action.
• Leased and temporary staff not insured. Agency workers and staffing company employees left outside the definition of employee.