Avoid the Devastating Impact of Employee Claims!

Employee claims are an everyday reality for employers in California.  Human resource managers in larger organizations deal with them on a regular basis.  If you own or manage a smaller organization you may have avoided employee claims.  The likelihood that you will continue to avoid them drops with every passing day.

Many employers purchase Employment Practices Liability Insurance (EPLI) as a tool for managing the rising probability of employee claims.  EPLI policies address the fact that most general business insurance policies exclude employment-related claims.  EPLI policies typically cover standard employment claims such as discrimination, harassment and wrongful termination.  Many do not, however, cover commonly asserted claims such as wage and hour violations or statutory penalties.

Making good decisions about whether an EPLI policy is necessary and a good fit for your organization requires the assistance of a knowledgeable and trusted insurance broker. The broker will guide you through the various policy options available and provide a wealth of risk management information.  Equally important is the selection of the defense attorney you want to use when an employment claim arises.

Once you have an EPLI policy, it is critical to ensure that employee claims are correctly processed both internally and externally.  The internal processing involves the communication about and the handling of the claim within your organization. Finance and operations executives tend to be involved in the purchase of and are knowledgeable about the terms of the EPLI policy, whereas human resource personnel tend to be the first to know that an employment claim has been filed.  Cross-communication and cooperation between these two key company functions is critical.  External processing involves communicating with counsel and the insurance carrier.

Employers who are serious about risk management should prepare for employment claims before they are asserted.  This will help ensure an effective EPLI defense.  Employers with EPLI policies should follow these preparatory steps.

• Select Defense Counsel in Advance.  If you already use trusted employment law counsel, your carrier may allow you to pre-designate your chosen law firm at the time the policy is purchased or renewed.  Some policies allow the insured to select its own counsel without such pre-designation.  Asking the right questions of your broker and specifying at the outset the employment lawyer you want is the best way to ensure that you get the defense counsel of your choice.

• Train Staff on Claims Recognition.  Train key personnel to recognize a “claim” as it is defined under the EPLI policy.  What constitutes a “claim” is detailed in the policy and generally defined very broadly.  It may even include pre-lawsuit claims, such as when a discrimination complaint is filed at a governmental agency like the California Department of Fair Employment and Housing.  Even a “demand” letter from a threatening employee or lawyer may constitute a claim.  Keep in mind that as policies change from year to year, the definition of a “claim” may also change.

• Develop Protocol for Receipt and Processing of Claims.   Avoid cross-communication mishaps related to claims and potential claims.  Make sure key personnel know their respective roles and when other personnel should get involved. It is a good idea to have a specific person designated to whom all claims are promptly forwarded. The protocol should also include things such as identifying the name of the employee who received the claim and the accurate date, time and how the claim was received.

• Be Thoughtful and Precise in Tendering Claims to the Carrier.  Once a claim arises, carefully consider the requirements in the policy for tendering the claim.  This may involve discussions with your broker regarding the pros and cons of tendering a particular claim at all and may include strategic advice on how and what to communicate with the carrier.
• Do Not Delay.  EPLI policies typically require very prompt communication of claims and potential claims.  Follow carefully the means and timing of the tender as stated in the policy.  As a general rule, attorneys’ fees and costs incurred to defend a claim may not “count” against your retention (deductible) until the date of tender.   If you incur attorneys’ fees and costs before the claim is tendered, your company will likely have to pay those fees plus the full amount of the retention.  Worse yet, if a claim is not tendered within the time frame required by the policy, the claim may be denied. Do not forget to follow-up to ensure that the carrier received the claim and accepted it.

The great majority of employers in California should at least seriously consider the addition of an EPLI policy, but not just any policy will do.  Without the expert guidance of a knowledgeable broker and employment counsel, you might be shelling out premium dollars that do not effectively achieve your risk management objectives.  Once you have a policy, the development of effective protocols for handling claims will ensure that claims are not denied and that they are positioned for successful defense.

As always, if you have questions or concerns, we are here to support you.