Businesses of all sizes should have coverage for employment practice claims. EPL policies are now sold as endorsements to workers' compensation policies or packaged with property and liability policies. The EPL endorsement generally funds the defense costs for employee claims, including those that are unsuccessful.

The following actions are points to keep in mind before and after securing coverage:

• In some cases, the insurer may have an extensive program of loss prevention as part of the EPL policy coverage and may be able to assist an organization in developing sound employment practices.

EPL underwriters will be looking for the following common mistakes before writing the policy and assessing premiums:

• Lack of employee handbook/harassment policy.
• Insufficient applicant evaluation.
• Inadequate or erroneous documentation of personnel decisions.
• Incomplete or inaccurate employment evaluations.
• Failure to have appropriate procedures in place to investigate complaints.
• Failure to follow severance procedures for:
• Negotiating releases and waivers of claims.
• Providing COBRA and other required benefits information.
• Reach agreement with the CGL, D&O, and EPL insurers on selection of defense counsel when the policies are placed or renewed.

The choice of defense counsel can be critical to the success of an employment-related claim. Insurers may have a list of approved defense counsel, while many organizations have their own list of outside counsel that they deal with on a regular basis. In some cases, the lists may include the same names, but they may not. Large businesses with corporate risk managers or in-house counsel often prefer to predesignate the liability defense counsel, so they can maintain better control over the claim and are assured of working with counsel that understand the company and its industry. Large organizations typically have a self-insured retention of $500,000 or $1 million within which the business manages claims with its own defense counsel.

Most EPL forms pay for or reimburse the insured for defense costs. The insurer usually controls settlement, but businesses should make sure the insurer does not have the right to settle without the insured's consent. In order to encourage the insured to agree to settlement, insurance companies may use what is known in the industry as a "hammer clause." A hammer clause generally states that, if the insured refuses the settlement offer, the insurer's responsibility to pay the loss is capped at the amount of the settlement offer. The clause may allow for continued participation by the insurer even after the insured has rejected a settlement offer.

• Report every likely claim situation to all insurers: D&O, CGL, EPL, and umbrella/excess carriers.

Most polices are claims-made coverages, not occurrence coverages, so claims must be reported within the policy period itself or any extended period in order to be covered. The insurer generally agrees to pay damages only if a claim is first made during the policy period or within a 30-to-60 day period after the policy period ends. The timing of a claim can be a critical issue in pay-related discrimination cases, for example. The Lilly Ledbetter Fair Pay Restoration Act of 2009 resets the statute of limitations for pay-related discrimination cases to provide an employee with 180 days to file a formal complaint of discrimination after receiving each paycheck, rather than only after the initial instance of pay discrimination.