What Every HR Professional Should Know About Employment Practices Liability Insurance Steve Gissy, AHM Financial Group Kirsten Finlayson, Federal Insurance Company Charles Poplstein, Partner Labor and Employment Law Practice Area Thompson Coburn LLP 2012 Employment Practices Liability Potential Claimants: 1. Current Employees 2. Past Employees 3. Applicants for Employment 4. Third Party Claims and Allegations Including but Not Limited to: 1. Wrongful Termination 2. Failure to Promote 3. Failure to Mentor 4. Failure to Hire 5. Misrepresentationin Hiring 6. Discrimination 7. Sexual Harassment 8. Violation of Employment Laws 9. Breach of Implied Contract 10. Public Policy Violations 11. Misrepresentation 12. Defamation and other Personal Injuries 13. Sarbanes Oxley 1
Employment Practices Liability Coverage Option 1. Stand Alone Policy 2. Endorsement to Package Policy 3. Endorsement to Directors and Officers Liability Policy COVERAGE ISSUES 1. CoveragePeriods Eventsprior to coverage / Eventsafter coverage secured 2. Prior Knowledge Notice to Whom? 3. Multiple Causes VSPolicy Language (CreativePlaintiff lawsuit) Relationshipshouldbe of a partnerin dealingwith claim: Dealwith Broker / Carrier / LegalCounselwith knowledge andexperience to filter throughmajorissues (ReservationofRights) PREMIUM DEVELOPMENT FACTORS States of Operation (CA, TX, AL highest rated) Right To Work Employ At Will Number of Employees Full Time Part Time Union Employees? No. of Locations / Number of people at each location 2
PREMIUM DEVELOPMENT FACTORS (Continued) Qualityof Employment Application / Screeningprocesses Quality of Employee Handbook Type of Company Retail FinancialInstitution related (Discriminationoften excluded) (Redlining Issue) Publically Traded PEO Employment Practices Liability 1. Stand Alone Policy: $1,200 - $1,500 Minimum Premium Company A: 10 Employees $1,000,000 Limit $ 2,500 Deductible NIL Coinsurance $ 1,500 Premium Company B: 100 Employees $1,000,000 Limit $ 5,000 Deductible 20% Co Insurance $ 6,000 Premium ($2,000,000 Limit, $23,000) Company C: 300 Employees $1,000,000 Limit $ 25,000 Deductible 20% Coinsurance $ 15,000 Premium Employment Practices Liability 2. Package Policy Endorsement: $1,000,000 Limit $35-$50 per employee 3. Directors and Officers Liability: Circumstances Vary 3
EMPLOYMENT PRACTICES LIABILITY Coverage / Terms andconditions WishList Retro Active Date New Coverage: Silent Subject to a signed warranty No known actions / incidents / allegations Renewal / ReplacementCoverage: FullPrior Acts RetroActivedateto correspond with expiring policy. Claims Reporting Criteria (Upon replacement / change of carrier) Claims Reporting Window: 60 Days on expiring policy Claim Trigger: Occurrence Date Upon Discovery Upon notification of carrier EMPLOYMENT PRACTICES LIABILITY Coverage / Terms andconditions WishList Change of Carrier: Forms / Terms and Conditions mirror each other as close as possible Preferred Defense Counsel Hammer Clause Client permission to settle Punitive Damages -- where permitted by law including Indirect Vicarious Damages Wage & Hour Coverage EMPLOYMENT PRACTICES LIABILITY Coverage / Terms and Conditions Wish List Illegal Workers covered including Investigation and Defense (Fines and Penalties not covered) Hotline Support 1-800- Third Party Coverage: Leased Workers Written Contract required Temporary Workers Seasonal Employees Subcontractors broadest interpretation Written Contract required Financial Institutions Discrimination typically excluded ( Redlining issues ) 4
Employment Practices Liability Insurance Kirsten Finlayson Chubb Group of Insurance Companies Specialty Claims February 16, 2012 Employment Practices Liability Coverage The Company shall pay Loss on behalf of the Insureds resulting from any Employment Claim first made against such Insureds during the Policy Period, or any applicable the Extended Reporting Period, for Wrongful Acts. Working With Chubb Your policy protects you in the event of an Employment Claim Your Policy provides optional coverage for 3 rd Party Claims Your Policy is Claims-Made, so timely reporting is important You may report Potential Claims 5
Who is covered? The organization and its Subsidiaries (as defined) past/present/future directors, officers, committee members, trustees, employees & volunteers Employees include part-time, seasonal or leased employees Independent Contractors can be covered as Insureds as well What is covered? Employment Claims Chubb will pay Loss, including Defense Costs, on behalf of an Insured for Employment Claims made during the Policy Period Coverage applies all over the world What is an Employment Claim? An Employment Claim means: - a written demand for monetary damages or non-monetary relief, including a demand for re-instatement; - a civil proceeding commenced by service of a complaint or summons; - a formal administrative or regulatory proceeding such as an EEOC or MCHR charge commenced by a filing of a notice of charges; or - an arbitration proceeding 6
Definition of Employment Claim, con t. Which is brought by or on behalf of any past, present, or prospective employee, volunteer, or independent contractor for any Employment Practices Wrongful Act. this includes claims brought by part- time, leased, temporary and seasonal employees What is an EPL wrongful act? Wrongful dismissal or termination Breach of contract Employment-related misrepresentation Violation of employment discrimination laws Age, race, gender, disability, pregnancy, sexual orientation Wrongful failure to hire or promote Wrongful discipline Negligent evaluation Wrongful infliction of emotional distress Violation of Public Policy Whistleblower Retaliation Invasion of Privacy Potential Claims Potential Employment Claim means a complaint or allegation of a Wrongful Act in connection with Discrimination, Harassment, Retaliation, Workplace Tort or Wrongful Employment Decision that does not constitute an Employment Claim but which may subsequently give rise to an Employment Claim 7
What types of claims do we see the most? AdministrativeCharges dually filed with the EEOC and the local state agency Recent EEOC claims $1M settlement on behalf of an unknown class for a race discrimination charge $350k settlement on behalf of 5 women alleging gender discrimination Recent Missouri case $750,000 verdict in an age discrimination claim 8
Special Concerns for National or International Employers Necessity of learning jurisdiction-specific employment laws and regulations Different risks in different states and countries Most other countries are not at will jurisdictions Engagement of defense counsel in foreign jurisdictions or other states Special Concerns for Not-For-Profit Entities Directors and Officers are at greater risk for employment claims due to greater levels of oversight and involvement Limited resources for HR or Risk Management departments Presence of volunteers (at NFP) Engagement of youth either in volunteer or internship capacity Employees may be motivated by causes or interests and not as cognizant of businessneeds Responsibilities to public, donors, employees The duty to defend Chubb has the duty to defend you and your organization, even if any of the allegations are groundless, false, or fraudulent Communications between you, Chubb, and defense counsel are privileged Appointment/selection of counsel can be endorsed onto your Policy 9
What Can You Expect? The Insurance Company should be your partner. We will work with you, your insurance broker, and defense counsel to get the right result. Telephone contact with our Insured within 48 hours Letter sent to Insured and Broker within 48 hours acknowledging receipt of claim Telephone call and letter sent to Insured and Broker within 45 days outlining coverage available under the policy 28 What Can You Expect? Verbal communication of declinations Ongoing coverage analysis as information is learned Team Approach to litigation management Team Approach to Litigation Management Litigation Management Program - early communication of billing expectations. Fair review of invoices throughout litigation Benefit to Insured Deductible and Defense within Limits Development of a defense strategy and liability assessment in partnership with our customers and counsel. Ongoing assessment of claim and communication with customer Attendance at insured meetings, settlement conferences, mediations, and court proceedings with appropriate authority 30 10
Who we are: In-house Claims Specialists Regional claims handling model Dedication to retaining and developing claim professionals Assignment and handling of claims based on examiners experience and expertise All of the claims professionals have degrees, the majority are licensed attorneys Highly experienced claims staff Offices all over the United States, Canada, Europe, Latin and South America and Asia 31 Loss Prevention ChubbWorks.com Web site - A free on-line resource for customers seeking assistance with employment issues. Offersconvenientaccess to comprehensive EPL loss-prevention tools, such as model employment policies, procedures and forms; and more. ChubbWorks ChubbWorks also includes industry-specific zones for health care organizations and not-for-profit organizations that include risk management information for EPL, directors and officers (D&O) liability, and fiduciary liability exposures. 11
Loss Prevention Loss Prevention Consultant Services - Chubb's network of more than 120 top law firms, HR consulting firms, and labor economist statistical firms offer specialized services designed to help our customers create customized solutions to their employment issues. Loss Prevention Toll-Free Hot Line - Puts employers in direct contact with a nationally recognized law firm for immediate answers to most EPL questions. Loss Prevention Employment Practices Loss Prevention Guidelines Manual - A free booklet that discusses key employment issues in layman s terms and offers proactive ideas for avoiding EPL lawsuits. 12
Suggestions for Insureds Become familiar with the terms and conditions of your policy. Maintain communications with your broker Become familiar with defense provisions - duty to defend Ensure that all appropriate persons within your organization are aware of the existence of the policy and the reporting requirements of the policy. Report claims or potential claims on a timely basis Include name, address, phone, fax and email for the contact person at your organization. 37 EPLI Insurance Typically purchased as part of over-all insurance package vs. stand-alone coverage Typically purchased by Risk Manager with little or no input from HR HR Involvement typically limited to due diligence What is Not Typically Covered? Claims under the National Labor Relations Act Claims under a written contract Wage claims, Minimum Wage, Overtime Injunction claims ERISA/Employee benefit claims OSHA; WARN Retaliation (in some instances) Lack of uniformity among policies in terms of coverage/work with broker to maximize coverage 13
Typical Features Duty to defend May or may not include defense of all claims in the complaint even if only one covered Control over selection of counsel Retention and price are variables Costs of defense applied to retention Extensive underwriting Claims made basis Hammer clause re settlement Claims Process: Early claims notification/start with demand letters to be safe Don t forget counterclaims/non-compete cases (allocation of fees) Regular reporting Evaluation of case to determine reserve Settlement Issues Management of bills Issues To Consider Amount of retention Control over defense Selection of counsel/rates Control over settlement Do defense costs count against retention Costs of defense can include suits against employees if included for strategic reasons Reservation of rights re coverage can create a conflict if insurer selects counsel. Insurer must provide separate counsel, withdraw the reservation, or take other steps to cure the conflict. Rimco Inc. v. Dowd, 858 S.W. 2d 307 (Mo. App. 1993); Howard v. Russell Stover Candies, Inc., 649 F. 2d 620 (8 th Cir. 1981) Assigned attorney is your counsel not the insurer s 14
Issues to Consider, continued Beware of attempts to create reimbursement rights/additional rights through coverage letters/read the coverage letters Acts of one insured should not be attributed to all insureds Interaction between D&O and EPLI coverage where individual employees are sued/will coverages have aggregate limits or stand-alone limits Potential D&O coverage for EPLI-excluded claims Determine reporting issues at stages of litigation, including during trial Issues to Consider, continued. Include severability clauses to preclude statements made by one insured in an application being imputed to others Include protection of innocent insureds for conduct of bad actors Include final adjudication language for bad act exclusions to preserve defense cost coverage Determine if the claims handling process is helpful or harmful to your ability to run your business and reduce costs QUESTIONS? 15