Today, organizations across industry lines risk facing potential litigation from the enforcement of employment regulations, perceived harassment from employees, and many other areas. That is why your American Bar Association Insurance Program partnered with Chubb to offer ABA members Employment Practice Liability Insurance to help mitigate the impact on our members' firms. ABA Insurance and Chubb recently compiled the following FAQ so members can learn more about EPL insurance:
What is EPL insurance and why is it valuable for a law firm to have?
EPL insurance helps protect a law firm, its executives and employees against allegations brought by fellow employees or applicants for employment who are alleging discrimination, harassment, retaliatory treatment, wrongful termination, breach of contract, or other similar employment-related wrongful acts.
What is typically covered under an EPL policy?
EPL insurance provides coverage for defense costs, damages and settlements (including punitive, exemplary, multiplied and liquidated damages, where legally insurable) arising out of a covered claim for employment related wrongful acts. Additionally, the policy will respond to covered claims alleging discrimination or harassment committed by law firm executives or employees against natural persons who are clients, vendors, service providers or other business invitees.
What are the typical claims that you see when it comes to EPL? Is there anything specific you see occurring more frequently in the law firm space that an EPL insurance policy would cover? What are the most common claims trends?
Generally speaking, we see a wide variety of claims under EPL policies, with allegations ranging from sexual harassment in the workplace to failure to provide a reasonable accommodation for an employee with a disability, to retaliatory termination or demotion of an employee who complains about a hostile work environment, to wrongful termination of an employee or failure to hire an applicant due to such employee’s or applicant’s age, race, religion, national origin or other protected status.
Many of the common claims trends we see in the employment practices arena, such as discrimination, harassment, retaliatory treatment, wrongful termination and failure to hire, occur in the law firm space as well. Specific to the law firm space, gender based claims, whether connected to sexual harassment or not, appear to be common. While not unique to law firms, additional allegations of breach of contract, misrepresentation of career opportunity, claims brought by partners or claims for failure to make partner are other claim types we frequently see from our law firm clients.
What size firm should have this coverage?
While many larger firms with employee counts well above 250 often purchase EPL coverage, we still see firms with even fewer than 75 employees having employment related claims – and surprisingly, the claims value of those smaller firms are often similar in amount to those of larger firms. Equally important, many of the larger claims for smaller firms include significant defense costs being incurred before the claim is concluded. Thus, EPL insurance is equally essential to small law firms as well as to mid-size to larger ones.
What are the consequences a law firm could face if they don’t have an EPL policy and an incident occurs to the firm?
The primary benefit to a law firm of an EPL policy is the payment of defense costs, damages and settlements that arise from a covered claim, which might be tens of thousands of dollars, but can often range into the many hundreds of thousands of dollars. Equally important is the expertise and collaborative support the law firm can get from dealing with the highly experienced claims team of a market leading EPL insurer, including access to claims trends and valuation, insight into impactful local factors like courts, judges and plaintiff’s counsel, and an objective outside opinion on claim assessment and strategy. This type of support can provide tremendous added value beyond any actual payments under the policy itself.
Do you find that law firms feel they are already somewhat covered for employer issues with other existing policies they have?
It’s not uncommon for smaller to mid-size private company employers to mistakenly believe that they have coverage for employment related wrongful acts like discrimination, harassment or retaliation under their general liability policies or even workers’ compensation policies. However, we find that even though small law firms are aware of the different coverage each policy provides, those same law firms frequently don’t buy EPL insurance because of perceived low risk levels due to employee size, their own policies and procedures, or no prior loss experience.
Is there anything firms can do to reduce the chances of a claim against them?
What we have generally observed from handling EPL claims is that a law firm that has appropriately designed and vetted employment-related policies and practices (which were properly distributed and acknowledged by employees), continuously and consistently enforces those policies and procedures, and reasonably documents all material actions and decision-making subject to those policies and procedures, may improve the likelihood of avoiding situations that can give rise to a claim or improve the firm’s defensibility against such a claim, potentially mitigating its ultimate value. As an insurance company, we don’t give legal advice to our clients regarding loss prevention, but, as a value added service to all our law firm EPL clients, we may provide valuable risk management services such as access to a nationally recognized law firm through a free hotline staffed by employment attorneys, a comprehensive web-based news/training/informational, and a cost sharing feature for eligible loss prevention activities.
What type of information does a law firm need to provide to get the right coverage in place?
In order to secure a quote for EPL coverage, a law firm would need to provide information on:
- Employee count, makeup, geographic distribution, compensation ranges and turnover
- Prior employment loss/claims history
- Employment and applicant policies, procedures, training and pertinent documents
- Human resources infrastructure
- The partnership agreement
How has EPL coverage changed due to recent current events in the news?
Interestingly, many of the highly visible employment related current events in the news – ranging from sexual harassment in the workplace, to equal pay for males versus females, to retaliatory termination or demotion against whistleblowers or employees making complaints about workplace harassment or hostile work environments, to termination of elderly workers in favor of younger ones, to failure to hire individuals of certain national origins – are situations that generally have been intended to be insured under traditional EPL insurance policies. Much of the coverage conveyed by EPL insurance policies may respond to administrative proceedings (whether subject to the federally chartered Equal Employment Opportunity Commission or similar state employment/human rights commissions) or civil litigation that arises from an employer’s obligations under federal, state or local statutory law or common law. Thus the scope of coverage tends to naturally evolve as those laws, statutes and the regulatory bodies that enforce them do.
Any final thoughts about EPL coverage that you would like to mention?
Although law firms buying EPL insurance often purchase the product with the primary goal of obtaining insurance protection against a claim brought by employees or applicants for employment, they should ensure they receive each of the following key benefits to that purchase:
- A policy form customized for the needs and exposures of a law firm, including insurance for:
- Claims against not just the firm and its employees but all executives, including partners
- Claims brought by partners and claims for failure to make partner
- Claims alleging breach of contract
- Claims alleging discrimination and harassment against clients and other business related third parties
- Superior claims handling service through a nationwide claims team with deep knowledge and experience, not just with EPL in general, but specifically with law firms
- Valuable risk management services such as a free hotline staffed by employment attorneys, a comprehensive web-based news/training/informational, and access to a cost sharing feature for eligible loss prevention activities
- A global insurer with decades of experience writing and servicing EPL insurance to thousands of law firms, excellent financial strength and claims paying capability, and the ability to offer many additional management liability and property and casualty insurance products.
This content has been written by and used with permission from Chubb. For more information on EPL insurance options through the ABA Insurance Program, click here.