FREE DOWNLOAD: Sections 41.13 through 41.18 of the New Appleman Insurance Law Practice Guide - excerpt of Chapter 41 - What Risks Are Insured Under Employment Practices Liability (EPL) Insurance?

In sections 41.13 through 41.18 of Chapter 41 of the New Appleman Insurance Law Practice Guide, written by L.D. Simmons, II and Lowndes Christopher Quinlan, examines a multitude of issues that arise under EPL insurance. This glimpse of the chapter examines some of the issues it discusses with respect to the scope of coverage that EPL policies provide.
Sections 41.13 observes that although no standard language has gained very wide acceptance, a typical policy provides, “We shall pay those amounts the ‘insured’ is legally required to pay by reason of a ‘claim’ arising out of your ‘wrongful employment practice’ to which this insurance applies.”
Section 4.14 addresses the pivotal issue of what wrongful acts are covered. Typically they include:
•           Discrimination;
•           Harassment;
•           Retaliation; and
•           Adverse employment decisions.
Section 41.14 discusses the kinds of wrongful acts that fall within each of these categories. The section further points out that many EPL policies also insure for losses resulting from the following wrongful employment acts:
•           Defamation, libel and/or slander;
•           Humiliation, mental anguish, and infliction of emotional distress;
•           Invasion of privacy; and
•           Misrepresentation.
Section 41.15 considers the extent of coverage afforded under an EPL policy. Most EPL policies provide abroad grant of coverage. In addition, courts often broadly interpret the grant of coverage, so that an EPL policy may afford coverage greater than the insurer intended and Section 41.15 provides an example of this. Nonetheless, many acts related to employment do not constitute covered wrongful acts. Indeed, the section reports, “Most reported cases addressing coverage under the insuring agreement on an EPL policy have dealt with situations in which an employee sues an employer for acts related to the employment relationship, but that do not fall within the policy definition of a wrongful employment act.” Examples of such cases are discussed. Moreover, not all workplace torts fall within an EPL policy.   
Section 41.16 considers coverage for breach of employment contract claims. It notes that such coverage involves a “moral hazard” ― it can tempt the insured to commit the act insured against. Underwriters providing coverage for breach of employment contracts often address this potential problem by barring payment for future pay, severance pay or penalties payable under the contract. A subject of dispute is whether partnership or shareholder agreements are included under breach of employment contract coverage provisions. Section 41.16 looks at this issue. It also makes the strategic point that whether the insuring agreement carves out the breach of an employment agreement from the definition on of a wrongful employment act or excludes breach of employment contract claims affects the burden of proof of insurers and policyholders.
Section 41.17 considers the application of the fortuity doctrine to EPL coverage. If one of the parties to an insurance contract controls the risk of loss then no real transfer of risk occurs and thus no enforceable insurance exists. While it does not appear that any cases have addressed this issue with respect to EPL policies the potential clearly exists and so this section examines how this contention has fared with respect to commercial general liability (CGL) insurance. Most courts considering the issue hold that allegations of disparate discrimination are accidental because liability does not require proof of a discriminatory intent. Similarly negligent hiring, supervision and retention are accidental for purposes of CGL insurance. In contrast, intentional discrimination and harassment are not accidental for purposes of CGL insurance. The authors speculate that if an employer egregiously, deliberately discriminates against its employees, “the fortuity doctrine defense to [EPL] coverage might have some traction.”    
Section 41.18 considers corollaries to the fortuity doctrine: the known loss and loss in progress doctrines under which insurance coverage is precluded where the insured is (or should be) aware of a known loss or an ongoing progressive loss when it purchased the policy. The authors point out that most claims-made policies incorporate a number of provisions to protect the insurer form a known loss or a loss in progress. Moreover, the failure to list a known loss on an application for EPL coverage will likely give rise to a misrepresentation defense.   
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