Employment-Related Practices Liability Coverage
Includes copyrighted material of Insurance Services Office, Inc., with its permission.
January, 2018
ISO Coverage Form
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 11 09, 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 is an update of the analyzation of the ISO coverage form, with its insuring agreement, exclusions, conditions, and definitions, which was previously analyzed for the 01 02 edition.
Topics covered:
1.We will pay those sums the insured becomes legally obligated to pay as damages resulting from a "wrongful act" 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 a "wrongful act" to which this insurance does not apply. We may, at our discretion, investigate any incident that may result from a "wrongful act". We may, with your written consent, settle any "claim" that may result. But:
a. The amount we will pay for damages and "defense expenses" is limited as described in Section III—Limit Of Insurance and in Section IV—Deductible; and
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 a "wrongful act" as opposed to damages because of bodily injury (BI) or property damage (PD). EP 00 01 11 09 is meant to apply to employment-related practices which usually do not involve BI or PD. The term "wrongful act" 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 will come 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 within the limit of insurance. If the insured has a limit of insurance of $300,000 on EP 00 01 11 09, 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 covered as supplementary and separate payments as under a general liability coverage form. The insured should also note, both 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 11 09 ends. This acts as an incentive for the insured to settle lest he or she have to pay damages and attorney fees out of his or her own pockets.
2.This insurance applies to "wrongful acts" only if:
a. The "wrongful act" takes place in the "coverage territory";
b. The "wrongful act" 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" against any insured for damages because of the "wrongful act" is first made during the policy period or the Section VI—Extended Reporting Period, if provided, in accordance with Paragraphs 3. and 4. below.
3.A "claim" will be deemed to have been made at the earlier of the following times:
a. When notice of such "claim" after being received by any insured, is 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 30 days after the end of the policy period will be considered to have been reported within the policy period. However, this 30-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. If during the policy period you become aware of a "wrongful act" that may reasonably be expected to give rise to a "claim" against any insured, you must provide notice to us in accordance with the provisions of Section V, Condition C. Duties In The Event Of A Claim or Wrongful Act That May Result In A Claim. If such notice is provided, then any "claim" subsequently made against any insured arising out of that "wrongful act" shall be deemed under this policy to be a "claim" made during the policy period in which the "wrongful act" was first reported to us.
5. All "claims" because of a "wrongful act" committed against the same person, including damages claimed by any person for care, loss or services or death resulting at any time from the "wrongful act", 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 11 09 is a claims-made policy. The insurance applies to a wrongful act 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 first 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 11 09 provides a 30-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 30-day grace period is given automatically at no charge to the insured under the terms of EP 00 01 11 09. The extended reporting period section of EP 00 01 11 09 offers the insured more time in which to report a claim and that section is discussed later in this article.
Paragraph 4. of the insuring agreement provides that if the insurer is notified of a wrongful act at any time during the policy period that may reasonably be expected to give rise to a claim, then any claim arising out of that wrongful act will be deemed as a claim made during the policy period in which the wrongful act was first reported. For example, a female employee was declined a promotion for three consecutive years because she refused her supervisor's sexual advances. The supervisor came under fire for this from human resources when they learned of the advances. Human resources reported the wrongful act (failure to promote) to the insurer in the first policy period, even though the employee had not made a claim. If the employee subsequently files a sexual harassment claim, even years later, the claim will be deemed as a claim made at the time human resources initially reported the wrongful act to the insurer.
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, which will likely be a matter determined in future litigation.
2. Contractual Liability
Any "wrongful act" 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 and including amendments thereto: Title VII of the Civil Rights Act of 1964, the Americans With Disabilities Act, the Age Discrimination in Employment Act, the Equal Pay Act, the Pregnancy Discrimination Act of 1978, the Immigration Reform and Control Act of 1986 , the Family and Medical Leave Act of 1993 and the Genetic Information Nondiscrimination Act of 2008 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 a "wrongful act" 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 11 09 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, coverage will not apply. However, the exclusion then lists certain laws that do allow for coverage applicability; these laws deal basically with discrimination and employee abuse. Attempting to limit the writ in which EP 00 01 11 09 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. 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 11 09 will not cover those expenses. However, the phrase that "this insurance does not apply to a wrongful act 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 11 09 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.
The Genetic Information Nondiscrimination Act of 2008 became effective November 21, 2009. In general, the purpose of the Act is to prohibit the improper use of genetic information in health insurance and employment. The exclusion follows the intention of the Act to prevent employers and health insurers from discriminating against people who have a genetic predisposition to disease. With respect to employment-related practices, the Act makes it unlawful for employees to:
§"Fail or refuse to hire, or to discharge, any employee, or otherwise to discriminate against any employee with respect to the compensation, terms, conditions, or privileges of employment of the employee, because of genetic information with respect to the employee;"
§"Limit, segregate, or classify the employees of the employer in any way that would deprive or tend to deprive any employee of employment opportunities or otherwise adversely affect the status of the employee as an employee, because of genetic information with respect to the employee."
§"Request, require, or purchase genetic information with respect to an employee or a family member of the employee" except as otherwise noted in the Act.
The Act requires genetic information possessed by employers to be confidentially maintained and disclosed to the employee or other specified entities (such as labor organization or a health researcher) under specifically designated circumstances.
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 11 09 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 a wrongful act 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 11 09 will not respond to that latter claim.
5. Strikes And Lockouts
Any "wrongful act" committed against 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 11 09, 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. Wrongful acts arising out of strikes, lockouts, and labor disputes are part of the labor-management relationship and are handled best in that arena, not through an insurance policy.
6.Prior Or Pending Litigation
Any "claim" or "suit" against any insured which was pending on, or existed prior to, the applicable Pending or Prior Litigation Date shown in the Declarations, or any "claim" or "suit" arising out of the same or substantially the same facts, circumstances or allegations which are the subject of, or the basis for, such "claim" or "suit".
This exclusion is typically found in directors and officers errors or omissions policies. Note in this exclusion that there is no requirement that the insured have knowledge of such prior or pending litigation. Even if the insured has continuous coverage with 10-year past retroactive date, the prior and pending litigation exclusion is absolute and does not require the insured to have actual knowledge that a suit was filed prior to the current policy's inception for such action to be excluded from coverage. If a suit were filed the day before renewal, for example, but not received until after renewal, the prior and pending litigation date may act to exclude coverage for such suit even though the claim is made during the policy term, even if the insured was unaware of a wrongful act that may give rise to such a suit.
The 30-day grace period for reporting a claim and the optional extended reporting period were created in an effort to eliminate this coverage gap.
7.Prior Notice
Any "wrongful act" alleged or contained in any "claim" which has been reported, or for which, in any circumstance, notice has been given, under any other prior insurance policy providing essentially the same type of coverage.
While this exclusion may seem straight-forward, it is important to note that a prior notice exclusion could apply to a situation where there are interrelated facts of a wrongful act or circumstance that could give rise to more than one claim. For example, if a claim was reported under a prior policy for a wrongful act, but the same circumstance was later used by a new claimant to file a similar wrongful act claim under the current policy, then the current wrongful act could be excluded as a prior notice.
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
It is necessary to read this part of EP 00 01 11 09 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 and defense expenses, and no other sums unless "provided for under supplementary payments". These supplementary payments are not included in the limit of insurance and therefore, they do not reduce that limit when paid by the insurer. The supplementary payments listed on EP 00 01 11 09 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 11 09. The big difference is, of course, such payments, as part of "defense expenses" under EP 00 01 01 11 09, do reduce the limit of insurance available to the 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 a "wrongful act" 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 11 09 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 a "wrongful act" which is a defined term on EP 00 01 11 09 that describes work-related and employment-related activities.
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 1 09. Therefore, 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 11 09.
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 "wrongful acts" to which this insurance applies.
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 11 09.
Due to the nature of damages 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 wrongful act, the limit of insurance stated in the Declarations will not be increased.
In addition, 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, and that any payment of defense costs will decrease the declared limit of insurance available to the insured.
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 "wrongful acts"; 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, up to the limit of insurance. 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 wrongful act. Therefore, for example, if three people are demoted or wrongfully terminated together as a group for the same reason by the insured, and claims for wrongful acts 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.
Most of the conditions in EP 00 01 11 09 are basically the same as those found in 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 11 09, 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 Wrongful Act That May Result In A Claim 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 are 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.
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 "wrongful acts" 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 "wrongful act' occurs before the end of the policy period; and
3. The "wrongful act" did not commence before the Retroactive Date, if any.
D. You must give us a written request for the Extended Reporting Period Endorsement within 30 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 deductible 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% 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 11 09 is a claims-made policy and, as such, has an extended reporting period offer included. The extended reporting period section of EP 00 01 11 09 is similar to the one found in 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 11 09 offers an automatic 30-day reporting period after the end of the policy period in its insuring agreement; this 30-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 09 07) 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 11 09. 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.
EP 00 01 11 09 has ten definitions, some of which can be found on the CGL forms. Those that are defined in 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 in both forms.
As an example, "coverage territory" is defined in 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 11 09 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 a current, former or prospective "employee" for damages because of an alleged "wrongful act".
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 11 09.
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 11 09. Exclusion 4. applies to intentional discrimination and a "wrongful act" includes acts based on discrimination. The definition of "discrimination" in EP 00 01 11 09 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.
J. "Wrongful act" means one or more of the following offenses, but only when they are employment-related:
1. Wrongful 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. Harassment;
8. Libel, slander, invasion of privacy, defamation or humiliation; or
9. Verbal, physical, mental or emotional abuse arising from "discrimination".
Analysis
This definition stands at the heart of the coverage offered by EP 00 01 11 09. This is because the insuring agreement offers to pay those sums that the insured becomes legally obligated to pay as damages resulting from a "wrongful act".
The listed wrongful acts are employment-related in keeping with the purpose of the policy. Wrongful demotion, negative evaluation, wrongful termination, breach of employment contract, and harassment are just some of the examples of offenses that EP 00 01 11 09 considers to be covered wrongful acts.
It is interesting to note that EP 00 01 11 09 also covers 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 11 09 will cover the damages the insured is obligated to pay.
Libel, slander, or defamation are also included in this definition. 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 against the current employer; EP 00 01 11 09 considers this to be a covered wrongful act.
And, invasion of privacy is also included in the definition. In an employer-employee relation, the definition of privacy is not always clear. An employer must have access to very personal information, which few other people, even close friends would have access to. Because of this, the court systems try to balance two things at once: the employer has a certain justification for taking the action on one hand and the worker's reasonable expectations of privacy on the other. Currently, the courts look to one or more of the four following factors: deception, violation of confidentiality, secret, intrusive monitoring, and intrusion on someone's private life.
Deception: for instance, if an employee submits to a medical examination, and a drug screening is performed without prior disclosure, it would be deceptive to use the drug screening results as a basis for termination.
Violation of confidentiality: if an employee is told their information will be used for a specific purpose, but it is later used for some other purpose;
Secret, intrusive monitoring: illegal and undisclosed audio or video of an employee;
Intrusion of private life: an example of this would be showing a video at work of an employee's family or their playing a non-work sponsored sport;
Employers' commonly-held belief that employees have absolutely no right of privacy will not necessarily bear out in court.
In sum, this definition is helpful in that it gives the insured and the insurer some explicit guidelines as to what type of wrongful acts the ERPL policy is meant to cover.
EP 00 02 11 09 is another employment-related practices liability coverage form, but it differs from EP 00 01 11 09 in that it offers separate limits for defense and indemnity. Most of the wording in EP 00 02 11 09 and EP 00 01 11 09 is the same, but the following paragraphs show the differences.
The insuring agreement for EP 00 02 11 09 includes 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 11 09 contains the same exclusions as does EP 00 01 11 09
Following the exclusions, EP 00 02 11 09 adds paragraph C. Defense Expense Payments. 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 11 09 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 Section V – Conditions of the policy dealing with Transfer Of Duties When The Limit Of Insurance Or The Defense Expense Limit Is Used Up . EP 00 02 11 09 states that if the defense expense limits are used up and control of the 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 11 09, identical to the definition on EP 00 01 11 09. It simply means the payments allocated to a specific claim for its investigation, settlement, or defense. EP 00 02 11 09 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.