Summary: Employment-related practices liability is an exposure that is insured by many companies, and the coverage is most often written on policies that reflect the individual insurer's assessment of the exposures involved and the insurer's underwriting philosophy. The Insurance Services Office (ISO) offers employment-related practices liability (ERPL) coverage through the use of form EP 00 01 01 02, in which the insurer agrees to pay those sums that the insured becomes legally obligated to pay as damages resulting from an injury (a defined term that encompasses employment-related actions) to which the insurance applies. This article analyzes the ISO coverage form, with its insuring agreement, exclusions, conditions, and definitions.
Insuring Agreement
1. We will pay those sums the insured becomes legally obligated to pay as damages resulting from an “injury” to which this insurance applies. We will have the right and duty to defend the insured against any “suit” seeking those damages. However, we will have no duty to defend the insured against any “suit” seeking damages because of an “injury” to which this insurance does not apply. We may, at our discretion, investigate any incident that may result in “injury”. We may, with your written consent, settle any “claim” that may result. But:
a. The amount we will pay for damages or “defense expenses” is limited as described in Section III—Limit Of Insurance and in Section IV—Deductible;
b. The coverage and duty to defend provided by this policy will end when we have used up the applicable limit of insurance for “defense expenses” or the payment of judgments or settlements.
No other obligation or liability to pay sums, such as civil or criminal fines, imposed on you or any other insured, or to perform acts or services is covered unless explicitly provided for under Supplementary Payments.
Analysis
The first item that merits attention here is the fact that the insurer agrees to pay for damages resulting from an “injury”, as opposed to damages because of bodily injury (BI) or property damage (PD). EP 00 01 01 02 is meant to apply to employment-related practices which usually don't involve BI or PD. The term “injury” is defined on the coverage form and is discussed later in this article.
The insurer offers the standard duty to defend agreement, but declares that it has no duty to defend if the insurance does not apply. This acts as protection for the insurer to counter arguments that “if it is not mentioned in the policy that the insurer can decline to defend the insured in some cases, then it must defend in all cases”.
The insurer agrees not to settle a claim without the named insured's consent. This is usually an agreement that can be found on professional liability policies, but due to the nature of the claims involved in employment-related practices and the effect such claims and settlements of those claims could have on the insured's business, a consent to settle clause is justifiable. After all, if the named insured is sued often for employment-related practices and the suits are settled without giving the insured the benefit of presenting its side of the story, its image is bound to suffer. This could lead to more employment-related lawsuits against a “patsy” named insured and to loss of business as the public comes to know the insured as “anti-employee”.
The most the insurer agrees to pay for damages or defense expenses is described on the declarations page. The important point here is that defense expenses (a defined term discussed later in this article) are included in the limit of insurance. If the insured has a limit of insurance of $300,000 on EP 00 01 01 02, that means the insured has a total of $300,000 to cover both the damages won by the claimant and the attorney fees involved in a defense; defense fees are not extra amounts that are covered as supplementary and separate payments as under a general liability coverage form. And, the insured should note, the duty to defend and the coverage end when the applicable limit of insurance is used up. For example, if the defense expenses hit the $300,000 mark chosen as the limit of insurance by the insured, the duty to defend ends and the coverage provided by EP 00 01 01 02 ends. This acts as an incentive for the insured to settle lest he or she be left to pay damages and attorney fees out of his or her own pockets.
2. This insurance applies to “injury” only if:
a. The “injury” arises out of an offense that takes place in the 'coverage territory”;
b. The offense out of which the “injury” arose did not commence before the Retroactive Date, if any, shown in the Declarations or after the end of the policy period; and
c. A “claim” because of the “injury” is first made against any insured, in accordance with Paragraph 3. below, during the policy period or the Section VI—Extended Reporting Period, if provided.
3. A “claim” will be deemed to have been made at the earlier of the following times:
a. When notice of such “claim” is received by any insured and reported to us in writing; or
b. When a “claim” against an insured is made directly to us in writing.
A “claim” received by the insured during the policy period and reported to us within thirty days after the end of the policy period will be considered to have been reported within the policy period. However, this thirty day grace period does not apply to “claims” that are covered under any subsequent insurance you purchase, or that would be covered but for exhaustion of the amount of insurance applicable to such “claims”.
4. All “claims” arising out of an “injury” to the same person, including damages claimed by any person for care, loss or services or death resulting at any time from the “injury”, will be deemed to have been made at the time the first of such “claims” is made, regardless of the number of “claims” subsequently made.
Analysis
This section of the insuring agreement shows that EP 00 01 01 02 is a claims-made policy. The insurance applies to an injury if a claim is first made during the policy period or the extended reporting period, and the claim is deemed to have been made when the insurer is made aware of it, either by receiving notice in writing from any insured or by receiving written notice directly from a claimant.
EP 00 01 01 02 provides a thirty day grace period after the end of the policy period during which the insured can report a claim and have the claim considered as having been reported within the policy period. This grace period corresponds somewhat with the basic extended reporting period offered by the commercial general liability (CGL) claims-made coverage form; see Claims-Made CGL Form. This thirty day grace period is given automatically at no charge to the insured under the terms of EP 00 01 01 02. The extended reporting period section of EP 00 01 01 02 offers the insured more time in which to report a claim and that section is discussed later in this article.
Exclusions
This insurance does not apply to:
1. Criminal, Fraudulent or Malicious Acts
An insured's liability arising out of criminal, fraudulent or malicious acts or omissions by that insured.
This exclusion does not affect our duty to defend, in accordance with Paragraph A.1. above, an insured prior to determining, through the appropriate legal processes, that that insured is responsible for a criminal, fraudulent or malicious act or omission.
Analysis
This exclusion applies to an insured who commits a criminal, fraudulent, or malicious act, or simply stands by and allows such an act to happen. The exclusion does make the point that the duty to defend an insured will be upheld until it can be determined through legal processes that that insured is responsible for the acts noted in the exclusion. So, for example, if an insured breaks Federal or state law by discriminating against his employee due to racial bigotry and is found guilty in a court of law for doing so, the insurer will defend that insured against an employment-related liability claim by the employee until that guilty verdict is handed down.
However, the exclusion does not answer the question of whether the duty to defend will continue during the insured's appeals process. That question will, no doubt, be addressed through future litigation.
2. Contractual Liability
”Injury” for which the insured is obligated to pay damages by reason of the assumption of liability in a contract or agreement. This exclusion does not apply to liability for damages that the insured would have in the absence of the contract or agreement.
Analysis
This is a standard contractual liability exclusion. There is no exception for insured contracts as is the case with the CGL form, but the exception for liability for damages that the insured would have even without a contract or agreement is present. For more information on contractual liability issues, see CGL Coverage Form — Coverage A and .
3. Workers Compensation and Similar Laws
Any obligation of the insured under a workers compensation, disability benefits or unemployment compensation law or any similar law.
4. Violation of Laws Applicable to Employers
A violation of your responsibilities or duties required by any other federal, state or local statutes, rules or regulations, and any rules or regulations promulgated therefor or amendments thereto, except for the following: Title VII of the Civil Rights Act of 1964 and amendments thereto, the Americans With Disabilities Act, the Age Discrimination in Employment Act, the Equal Pay Act, the Pregnancy Discrimination Act of 1978, the Immigration Reform Control Act of 1986 and the Family and Medical Leave Act of 1993 or any other similar state or local statutes, rules or regulations to the extent that they prescribe responsibilities or duties concerning the same acts or omissions.
However, this insurance does not apply to “injury” arising out of your failure to comply with any of the accommodations for the disabled required of you by, or any expenses incurred as the result of physical modifications made to accommodate any person pursuant to, the Americans With Disabilities Act, or any amendments thereto, or any similar state or local statutes, rules or regulations to the extent that they prescribe responsibilities or duties concerning the same acts or omissions.
This Exclusion 4. does not apply to any “claim” for retaliatory treatment by an insured against any person making a “claim” pursuant to such person's rights under any statutes, rules or regulations.
Analysis
This exclusion tries to limit the scope of applicability of EP 00 01 01 02 and then backs off a bit. It declares that if the insured violates Federal, state, or local laws or regulations that are applicable to employers, EP 00 01 01 02 will not apply. However, the exclusion then lists certain laws that do allow for the applicability of EP 00 01 01 02; these laws deal basically with discrimination and employee abuse. Attempting to limit the writ in which EP 00 01 01 02 runs by listing applicable laws may be a reasonable decision, but neither the insured nor the insurer should believe that exclusion 5. will not be subject to legal challenges in the future. Whether the act of an insured falls within one of the exceptions is only one of the many legal hassles that can arise from this exclusion.
The exclusion also tries to block coverage for expenses incurred for making physical accommodations for disabled people. In other words, if the insured pays for ramps or lowered drinking fountains or remodeled desk areas in order to accommodate a physically disabled person, EP 00 01 01 02 will not cover those expenses. However, the phrase that “this insurance does not apply to injury arising out of your failure to comply with any of the accommodations for the disabled required by you” seems to contradict the exception made in the previous paragraph for the Americans With Disabilities Act (ADA). Perhaps, EP 00 01 01 02 will apply to fines that result from the violation of the insured's responsibilities under the ADA, but will not apply to damages resulting from a claim for injuries (as defined) due to a failure to comply with the accommodations for the disabled as required of the named insured by the ADA. The wording in this exclusion pertaining to the ADA is confusing for the insured and may prove troublesome to the insurer in a future lawsuit.
Finally, this exclusion makes the point that if the insured retaliates against one who has made a claim based on one of the laws noted in the exclusion, EP 00 01 01 02 will not respond to a resulting claim from the person against whom the insured retaliated. In other words, if, for example, a person makes a claim against the insured for injuries arising out of a violation of the age discrimination act, and the insured retaliates against that person by demoting or reassigning him, and that person then makes a claim based on that retaliatory action, EP 00 01 01 02 will not respond to that latter claim.
5. Strikes And Lockouts
”Injury” to any striking or locked-out “employee”, or to an “employee” who has been temporarily or permanently replaced due to any labor dispute.
Analysis
Striking or locked-out employees could suffer an injury as defined on EP 00 01 01 02, namely, termination of employment, demotion, negative evaluation, or some type of discipline. However, this exclusion emphasizes that such things are not meant to be covered by this liability coverage form. Strikes, lock-outs, and labor disputes and their resulting “injuries” are part of the labor-management relationship and are handled best in that arena, not through an insurance policy.
Supplementary Payments
We will pay, with respect to any “claim” we investigate or settle, or any “suit” against an insured we defend:
1. Prejudgment interest awarded against the insured on that part of the judgment we pay. If we make an offer to pay the applicable limit of insurance, we will not pay any prejudgment interest based on that period of time after the offer.
2. All interest on the full amount of any judgment that accrues after entry of the judgment and before we have paid, offered to pay, or deposited in court the part of the judgment that is within the applicable limit of insurance.
These payments will not reduce the limit of insurance nor be subject to Section IV — Deductible.
Analysis
This part of EP 00 01 01 02 has to be read in conjunction with the insuring agreement discussed previously. Note in the insuring agreement that the insurer will pay only the amount shown in the declarations for damages or defense expenses, and no other sums unless “provided for under supplementary payments”. These supplementary payments are not included in the limit of insurance and so, they do not reduce that limit when paid by the insurer. The supplementary payments listed on EP 00 01 01 02 are fewer than those found on the CGL form, but some of the supplementary payments on the CGL form, such as loss of earnings and costs taxed against the insured in a lawsuit, can be found as part of defense expenses as defined on EP 00 01 01 02. The big difference is, of course, such payments, as part of “defense expenses” under EP 00 01 01 02, do reduce the limit of insurance available to the insured.
Who Is an Insured
A. If you are designated in the Declarations as:
1. An individual, you and your spouse are insureds;
2. A partnership or joint venture, you are an insured. Your partners or members are also insureds.
3. A limited liability company, you are an insured. Your members and managers are also insureds.
4. An organization other than a partnership, joint venture or limited liability company, you are an insured. Your “executive officers” and directors are also insureds.
B. Your “employees” are also insureds, unless otherwise excluded in this policy.
C. Your former “employees” are also insureds, unless otherwise excluded in this policy, but only with respect to offenses committed while in your employ.
D. Any organization you newly acquire or form, other than a partnership, joint venture or limited liability company, and over which you maintain ownership or majority interest, will qualify as a Named Insured if no other similar insurance applies to that organization. You must notify us of such acquisition or formation as soon as practicable. However, coverage under this provision:
1. Is afforded only until the 90th day after you acquire or form the organization, or until the end of the policy period, whichever is earlier; and
2. Does not apply to an offense committed before you acquired or formed the organization.
No person or organization is an insured with respect to the conduct of any current or past partnership, joint venture or limited liability company that is not shown as a Named Insured in the Declarations.
Analysis
The who is an insured clauses on EP 00 01 01 02 list the usual categories of insureds — individual, partnership, limited liability company, organization — and this is not out of the ordinary. However, there are some differences with the categories as described on the CGL form and the ERPL form.
The ERPL form does not mention the phrase “with respect to the conduct of your business” as does the CGL form when it comes to describing an insured. For example, if the named insured is designated as an individual, the CGL form considers as an insured, “you and your spouse, but only with respect to the conduct of a business ….” If the named insured is a partnership, the CGL form considers as an insured, “your members, your partners, and their spouses, but only with respect to the conduct of your business”. The employment-related practices liability form does not limit the categories of insureds in this manner. This may give the impression that the ERPL form does not intend to limit its scope to just the business activities of the named insured. However, remember that the insuring agreement applies to damages resulting from an “injury”, and injury is a defined term on EP 00 01 01 02 that describes work-related and employment-related activities. It remains to be seen if this definition allows the insurer to keep the focus of EP 00 01 01 02 on business related activities; a future court case may decide otherwise.
Under the terms of the CGL form, the spouses of partners and members of joint ventures are insureds; the ERPL form does not extend the “insured” status to spouses of partners or members of joint ventures. Also, stockholders are not considered as insureds under EP 00 01 01 02. So, if a claimant files a lawsuit against a company based on an employment-related practice and names the company, its officers, and its stockholders as defendants, the stockholders should not look to the company's ERPL form for coverage or defense.
Employees as insureds are treated differently under the ERPL form than under the CGL form. The CGL form goes into a rather lengthy description of when an employee is and is not considered an insured; the ERPL form simply declares that employees are insureds unless otherwise indicated. Former employees are also included in this category—that is, generally considered as insureds unless otherwise indicated on the policy.
Finally, note that there are no real estate managers, temporary custodians of property, or legal representatives, listed as insureds under EP 00 01 01 02.
Limit of Insurance
A. The Limit of Insurance shown in the Declarations and the rules below fix the most we will pay regardless of the number of:
1. Insureds;
2. ”Claims” made or “suits” brought; or
3. Persons, organizations or government agencies making “claims” or bringing “suits”.
B. The Limit of Insurance is the most we will pay for the sum of:
1. All damages; and
2. All “defense expenses”
because of the total of all “claims” first made against an insured during the policy period.
The Limit of Insurance of this Coverage Part applies separately to each consecutive annual period and to any remaining period of less than twelve months, starting with the beginning of the policy period shown in the Declarations, unless the policy period is extended after issuance for an additional period of less than twelve months. In that case, the additional period will be deemed part of the last preceding period for purposes of determining the Limit of Insurance.
Analysis
There are two items to note in this section of EP 00 01 01 02.
Due to the nature of the injury that would be involved in an employment-related practices liability claim, this clause mentions that government agencies could be making a claim or bringing a lawsuit. However, even if the Federal and the state governments bring a lawsuit against the named insured at the same time and for the same offense, the limit of insurance stated in the declarations will not be increased.
And, the limit of insurance is the most the insurer will pay for the sum of all damages and all defense expenses. Another reminder that defense costs are included in the declared limit of insurance, so that any payment of defense costs will decrease the declared limit of insurance available to the insured.
Deductible
A. We will not pay for our share of damages and “defense expenses” until the amount of damages and “defense expenses” exceeds the Deductible shown in the Declarations. We will then pay the amount of damages and “defense expenses” in excess of the Deductible, up to the limit of insurance.
Example No. 1
Deductible: $5,000
Limit of Insurance: $100,000
Damages and “Defense Expenses”: $75,000
The Deductible will be subtracted from the amount of damages and “defense expenses” in calculating the amount payable.:
$75,000 – $5,000 = $70,000 Amount Payable
Example No. 2
Deductible: $5,000
Limit of Insurance: $100,000
Damages and “Defense Expenses”: $120,000
The Deductible will be subtracted from the amount of damages and “defense expenses” ($120,000 – $5,000 = $115,000). Since the amount of the damages and “defense expenses” minus the Deductible exceeds the Limit of Insurance, the policy will pay the full Limit of Insurance ($100,000).
B. The Deductible amount shown in the Declarations applies to all “claims” arising out of:
1. The same “injury”; or
2. A series of incidents, circumstances or behaviors which arise from a common cause
regardless of the number of persons, organizations or government agencies making such “claims”.
C. We may pay any part or all of the deductible amount to effect settlement of any “claim” and, upon notification of the action taken, you shall promptly reimburse us for such part of the deductible amount as has been paid by us.
Analysis
The insured is told that the amount of damages and defense expenses combined has to exceed the deductible amount that the insured has chosen. Once this occurs, the insurer will then pay that amount over the deductible. This section offers examples to the insured so that he may understand how and when the deductible works after a claim has been substantiated against the insured.
The deductible applies to all claims arising out of the same injury. So, for example, if three people are demoted or wrongfully terminated together as a group for the same reason by the insured, and claims for injuries are brought by the three, the deductible is applied only once and not to all three claims.
If the insurer pays the deductible up front to get a claim settled, the insured must repay this amount.
Conditions
Most of the conditions on EP 00 01 01 02 are basically the same as those found on the CGL form and will not be analyzed here; this includes bankruptcy, duties in the event of a claim, legal action against the insurer, other insurance, premium audit, representations, separation of insureds, transfer of rights of recovery, and when the insurer does not renew. Some of these conditions have clauses reflecting the deductible requirements of EP 00 01 01 02, but the thrust of the conditions is the same. For more information on the conditions in a liability policy, see General Provisions of the CGL.
B. Consent To Settle
If we recommend a settlement to you which is acceptable to the claimant, but to which you do not consent, the most we will pay as damages in the event of any later settlement or judgment is the amount for which the “claim” could have been settled, to which you did not give consent, less any deductible.
Analysis
The ERPL form is one that requires the written consent of the named insured to settle any claim. However, to protect itself from an intransigent insured, the insurer declares that if a settlement is worked out with the claimant and the insured refuses to agree, any final judgment or settlement that is above the initial settlement figure will be the responsibility of the insured. For example, if the insurer works out a settlement figure of $100,000 with the claimant, but the insured refuses to agree, and the claim goes to court resulting in a final judgment of $200,000 against the insured, the insurer will pay the $100,000 (less any deductible) and it will be up to the insured to come up with the rest of the judgment.
J. If You Are Permitted To Select Defense Counsel
If, by mutual agreement or court order, the insured is given the right to select defense counsel and the Limit of Insurance has not been used up, the following provisions apply:
1. We retain the right, at our discretion, to:
a. Settle, approve or disapprove the settlement of any “claim”; and
b. Appeal any judgment, award or ruling at our expense.
2. You and any other involved insured must:
a. Continue to comply with Section V—Paragraph C., Duties in the Event of a “Claim” or an Incident that may Result in “Injury” Condition as well as the other provisions of this policy; and
b. Direct defense counsel of the insured to:
(1) Furnish us with the information we may request to evaluate those “suits” for coverage under this policy; and
(2) Cooperate with any counsel we may select to monitor or associate in the defense of those “suits”.
3. If we defend you under a reservation of rights, both your and our counsel will be required to maintain records pertinent to your “defense expenses”. These records will be used to determine the allocation of any “defense expenses” for which you may be solely responsible, including defense of an allegation not covered by this insurance.
Analysis
The applicability of this condition depends on the insured being given the right to select his or her own defense counsel, and on the limit of insurance not being used up. In such an instance, the insurer has already hired a defense attorney but, for whatever reason, the insured also hires an attorney; and, while these two attorneys may both be working toward settling the employment-related practices liability claim, there may be some conflict of interest that exists. Therefore, this particular condition spells out the insurer's view of the relationship that should exist between the attorney it has selected and the attorney hired by the insured.
The insurer retains the right to approve or disapprove the settlement of a claim handled by the insured's chosen attorney. If the insurer disapproves the settlement, and a later settlement or judgment ends up costing more than the initial disapproved settlement amount, the insurer agrees to pay the difference.
The insurer requires the insured's attorney to cooperate with the insurer in the attempts to settle the claim.
Finally, the insurer declares that if the insured has hired his or her own attorney, and the insurer is already defending under a reservation of rights letter, both attorneys need to keep expense records. This is done in order for the insurer to be able to allocate defense expenses so that the insured pays for the attorney he or she has hired, and the insurer pays for the attorney it has hired.
K. Transfer Of Duties When Limit Of Insurance Is Used Up
1. If we conclude that, based on “claims” which have been reported to us and to which this insurance may apply, the limit of insurance is likely to be used up in the payment of judgments or settlements for damages or the payment of “defense expenses”, we will notify the first Named Insured, in writing, to that effect.
2. When the limit of insurance has actually been used up in the payment of judgments or settlements for damages or the payment of “defense expenses”, we will:
a. Notify the first Named Insured in writing, as soon as practicable, that such a limit has actually been used up and that our duty to defend the insured against “suits” seeking damages subject to that limit has also ended;
b. Initiate, and cooperate in, the transfer of control, to any appropriate insured, of all “suits” for which the duty to defend has ended for the reason described in 2.a. above and which are reported to us before that duty to defend ended; and
c. Take such steps, as we deem appropriate, to avoid a default in, or continue the defense of, such “suits” until such transfer is completed, provided the appropriate insured is cooperating in completing such transfer.
3. When 2.a. above has occurred, the first Named Insured, and any other insured involved in a “suit” seeking damages subject to that limit, must:
a. Cooperate in the transfer of control of “suits”; and
b. Arrange for the defense of such “suit” within such time period as agreed to between the appropriate insured and us. Absent any such agreement, arrangements for the defense of such “suit” must be made as soon as practicable.
4. We will take no action with respect to defense for any “claim” if such “claim” is reported to us after the applicable limit of insurance has been used up. It becomes the responsibility of the first Named Insured, and any other insured involved in such a “claim”, to arrange defense for such “claim”.
5. The first Named Insured will reimburse us as soon as practicable for expenses we incur in taking those steps we deem appropriate in accordance with paragraph 2. above.
6. The exhaustion of the applicable limit of insurance and the resulting end of our duty to defend will not be affected by our failure to comply with any of the provisions of this Condition.
Analysis
This condition simply reinforces the statement made by the insurer in the insuring agreement that “the coverage and duty to defend provided by this policy will end when we have used up the applicable limit of insurance ….” In such a case, the insurer will transfer defense duties to any appropriate insured — probably the first named insured, although the condition does not state that. The important things for the insured to note here is that the insurer's duty to defend can come to an end, the insurer will waste no time dropping defense duties when the time comes, the first named insured is probably going to be the only insured notified of the end of the duty to defend, and the first named insured is required to reimburse the insurer for expenses incurred in the transfer of duties process.
Extended Reporting Period
A. You will have the right to purchase an Extended Reporting Period from us if:
1. This Coverage Part is cancelled or not renewed for any reason; or
2. We renew or replace this Coverage Part with insurance that:
a. Has a Retroactive Date later than the date shown in the Declarations of this Coverage Part; or
b. Does not apply to “injury” on a claims-made basis.
B. An Extended Reporting Period, as specified in Paragraph A. above, lasts three years and is available only by endorsement and for an additional charge.
C. The Extended Reporting Period starts with the end of the policy period. It does not extend the policy period or change the scope of coverage provided. It applies only to “claims” to which the following applies:
1. The “claim” is first made during the Extended Reporting Period;
2. The “injury” occurs before the end of the policy period; and
3. The offense out of which the “injury” arose did not commence before the Retroactive Date, if any.
D. You must give us a written request for the Extended Reporting Period Endorsement within thirty (thirty) days after the end of the policy period or the effective date of cancellation, whichever comes first.
E. The Extended Reporting Period will not go into effect unless you pay the additional premium promptly when due and any premium or co-payment you owe us for coverage provided under this policy. Once in effect, the Extended Reporting Period may not be cancelled.
F. We will determine the additional premium in accordance with our rules and rates. In doing so, we may take into account the following:
1. The exposures insured;
2. Previous types and amounts of insurance;
3. Limit of Insurance available under this policy for future payment of damages; and
4. Other related factors.
The additional premium will not exceed 200 percent of the annual premium for this policy.
G. When the Extended Reporting Period Endorsement is in effect, we will provide a Supplemental Limit of Insurance for any “claim” first made during the Extended Reporting Period.
The Supplemental Limit of Insurance will be equal to the dollar amount shown in the Declarations in effect at the end of the policy period. Paragraph B. of Section III — LIMIT OF INSURANCE will be amended accordingly.
Analysis
EP 00 01 01 02 is a claims-made policy and, as such, has an extended reporting period as part of its makeup. The extended reporting period section of EP 00 01 01 02 is similar to the one found on the claims-made CGL form, but there are some items of difference that merit mention. For more information on extended reporting periods, see Claims-Made CGL Form.
EP 00 01 01 02 offers an automatic thirty day reporting period after the end of the policy period in its insuring agreement; this thirty day period is not subject to any additional premium. However, if the insured wants additional time, he or she must request, in writing, the extended reporting period endorsement (EP 28 01 04 98) and pay for it before the endorsement goes into effect. The extended reporting period lasts three years and starts with the end of the policy period. The extended reporting period endorsement does not, of course, extend the policy period or change the scope of the coverage provided by EP 00 01 01 02. The endorsement provides a supplemental limit of insurance equal to the dollar amount shown in the declarations of the ERPL policy in effect at the end of the policy period.
Definitions
EP 00 01 01 02 has ten definitions, some of which can be found on the CGL forms. Those that are defined on the CGL forms (coverage territory, employee, executive officer, leased worker, suit, and temporary worker) will not be reproduced here; for information on those definitions, see Commercial General Liability Definitions. However, there are some points to note even with the definitions that appear on the ERPL form and on the CGL forms.
As an example, “coverage territory” is defined on the ERPL form and the CGL forms as basically the same territory except that the ERPL form does not include Canada . An “employee” under the terms of the ERPL form includes a temporary worker, unlike the CGL forms. And, a “suit” under EP 00 01 01 02 includes any administrative proceeding or hearing conducted by a governmental agency having the proper legal authority over the matter in which employment-related practices liability damages are claimed; administrative proceedings or hearings are not mentioned in the CGL forms' definition of “suit”.
A. ”Claim” means a “suit” or demand made by or for the injured person for damages because of alleged “injury”.
C. ”Defense expenses” means payments allocated to a specific “claim” we investigate, settle, or defend, for its investigation, settlement or defense, including:
1. Fees and salaries of attorneys and paralegals we retain, including attorneys and paralegals who are our “employees”.
2. Fees of attorneys the insured retains when, by our mutual agreement or court order (or when required by administrative hearing or proceeding), the insured is given the right to retain defense counsel to defend against a “claim”.
3. All other litigation or administrative hearing expenses, including fees or expenses of expert witnesses hired either by us or by the defense attorney retained by an insured.
4. Reasonable expenses incurred by the insured at our request to assist us in the investigation or defense of the “claim”, including actual loss of earnings up to $250 a day because of time off from work.
5. Costs taxed against the insured in the “suit”.
”Defense expenses” does not include salaries and expenses of our “employees” or the insured's “employees” (other than those described in 1. and 4. above).
Analysis
Defense expenses are fairly well self-explanatory. The insured should remember that these expenses, when paid, do reduce the limit of insurance available under EP 00 01 01 02.
D. ”Discrimination means violation of a person's civil rights with respect to such person's race, color, national origin, religion, gender, marital status, age, sexual orientation or preference, physical or mental condition, or any other protected class or characteristic established by any federal, state or local statutes, rules or regulations.
Analysis
Discrimination is part of an exclusion and a definition in EP 00 01 01 02; exclusion 9. applies to intentional discrimination and “injury” includes injury based on discrimination. The definition of “discrimination” in EP 00 01 01 02 encompasses the violation of a person's civil rights with respect to just about every category one can think of or on which governmental authorities can legislate.
G. ”Injury” means injury to your “employee” arising out of one or more of the following offenses:
1. Demotion or failure to promote, negative evaluation, reassignment or discipline of your current “employee” or wrongful refusal to employ;
2. Wrongful termination, meaning the actual or constructive termination of an “employee”:
a. In violation or breach of applicable law or public policy; or
b. Which is determined to be in violation of a contract or agreement, other than any employment contract or agreement, whether written, oral or implied, which stipulates financial consideration if such financial consideration is due as the result of a breach of the contract;
3. Wrongful denial of training, wrongful deprivation of career opportunity, or breach of employment contract;
4. Negligent hiring or supervision which results in any of the other offenses listed in this definition;
5. Retaliatory action against an “employee” because the “employee” has:
a. Declined to perform an illegal or unethical act;
b. Filed a compliant with a governmental authority or a “suit” against you or any other insured in which damages are claimed;
c. Testified against you or any other insured at a legal proceeding; or
d. Notified a proper authority of any aspect of your business operation which is illegal;
6. Coercing an “employee” to commit an unlawful act or omission within the scope of that person's employment;
7. Work-related harassment;
8. Employment-related libel, slander, invasion of privacy, defamation or humiliation; or
9. Other work-related verbal, physical, mental or emotional abuse arising from “discrimination”.
Analysis
This definition stands at the heart of the coverage offered by EP 00 01 01 02. This is because the insuring agreement offers to pay those sums that the insured becomes legally obligated to pay as damages resulting from an “injury”. (Note that “injury” is not limited to a certain type of injury; if a claimant suffers mental injury, psychological injury, physiological injury, etc., etc., and such injury arises out of the listed offenses, EP 00 01 01 02 can apply.)
The listed injuries are employment-related in keeping with the purpose of the ERPL policy. Demotion, negative evaluation, wrongful termination, breach of employment contract, and work-related harassment are just some of the examples of offenses that EO 00 01 considers to be covered injuries.
It is interesting to note that EP 00 01 01 02 also considers as injuries those injuries that arise out of retaliatory actions against an employee and coercing an employee to commit an unlawful act. Thus, if whistle-blowers and those employees who refuse to perform or accept illegal and unethical actions on the part of the named insured business file claims for injuries against the named insured, EP 00 01 01 02 will cover the damages the insured is obligated to pay.
Injuries due to libel, slander, or defamation are also included in this definition. So, for example, if the employee is seeking another job and the current employer tells the prospective employer that the employee is a “goof-off” or “untrustworthy”, that can lead to a claim for injury against the current employer; EP 00 01 01 02 considers this to be a covered injury.
And, invasion of privacy is also included in the definition. So, if the employer reads private correspondence on the computer or goes through the employee's desk or locker, is this an invasion of privacy? The current legal thinking is that employees have no expected right to privacy for using company computers; but this may change over the years and if so, EP 00 01 01 02 is there to provide insurance protection to the named insured employer.
In sum, this definition is helpful in that it gives the insured and the insurer some explicit guidelines as to what type of injury the ERPL policy is meant to cover.
EP 00 02 01 02
EP 00 02 01 02 is another employment-related practices liability coverage form, but it differs from EP 00 01 01 02 in that it offers separate limits for defense and indemnity. Most of the wording in EP 00 02 01 02 and EP 00 01 01 02 is the same, but the following paragraphs show the differences.
The insuring agreement for EP 00 02 01 02 has the statement that the insurer will pay those sums that the insured becomes legally obligated to pay as damages, but then adds the promise to “pay or reimburse for defense expenses.” Defense expense is a defined term that is discussed later in this article.
EP 00 02 01 02 contains the same exclusions as does EP 00 01 01 02, and then adds a paragraph—defense expense payments—after the exclusions. This paragraph declares that the defense expense payments are subject to the limit shown in the declarations of the policy; this applies even if the insured assumes control of the defense. If the insured does assume control of the defense before the expense limit is used up, the insurer promises to reimburse the insured up to the remaining limit then available.
The next area of difference is found in the limit of insurance clause. Here, EP 00 02 01 02 separates the discussion of the limit of insurance paid for damages from the defense expense limit. The defense expense limit is the most that the insurer is obligated to pay for defense expenses regardless of the number of insureds, persons or organizations making claims or bringing lawsuits, or claims made or lawsuits brought. Each payment or reimbursement made for defense expenses reduces the limit, but does not affect the limit of insurance available for the payment of damages.
There is additional information added to the conditions section of the policy dealing with the transfer of duties when the defense expense limit is used up. EP 00 02 01 02 states that if the defense expense limits are used up and the control of defense has been transferred to the insured, the following provisions apply: the insurer retains the right to appeal any judgment, award, or ruling at the insurer's expense; the insured has to continue to comply with all of his duties required in the event of a claim; and the insured has to direct his counsel to furnish the insurer with information requested to evaluate the lawsuit and coverage, and to cooperate with any counsel selected by the insurer to monitor or associate in defense of the lawsuits filed against the insured.
The term “defense expenses” is defined on EP 00 02 01 02, but the definition is the same as it appears on EP 00 01 01 02. It simply means the payments allocated to a specific claim for its investigation, settlement, or defense. So basically, EP 00 02 01 02 has not changed the meaning of defense expenses under the employment-related practices liability coverage form; it has just treated the expenses as a category separate and distinct from indemnity payments.