October 20, 2010

Credit Union Management magazine’s new Web-only “Insurance Matters” runs the third Wednesday of each month.

Mary Simpson is an employee of Mapledale Credit Union (names changed to protect the protect-able.) Mary resigns abruptly after a new branch manager is hired. A month later, a letter arrives at the CEO’s office from Mary’s attorney. He asks for $250,000 as compensation for age discrimination by the CU.

Peter Miller applies for a teller job at OverMeadow Credit Union. He does not get the job but later sues the CU for discrimination. Peter thinks he was not hired because he is gay.

An employee claims to have been harassed by a supervisor. A teller discharged for chronic customer service complaints claims age discrimination. An unsuccessful job applicant alleges discrimination due to his race.

These are complicated situations for credit unions. Here’s information that can help you sort things through.

EPLI Coverage Considerations
Employment practices liability insurance addresses liabilities that come out of the employment relationship. Coverage should be included for harassment, discrimination, wrongful discharge, failure to hire, and failure to promote. The insurance will pay for the cost of defending the claim and the cost of a court award (or approved settlement) in a lawsuit.

There are no standard EPLI policies. Each policy and proposal must be evaluated on its own merits.

Definition of Wrongful Employment Practice
Each EPLI policy will contain a definition of the wrongful acts included in the policy. These might include:

• discrimination;
• negligent hiring;
• wrongful discharge, evaluation, discipline, promotion;
• employment-related personal injury (libel or slander);
• sexual harassment;
• workplace harassment;
• failure to hire and
• workplace tort – wrongful termination, retention, etc.

Definition of Harassment
Some policies narrowly define coverage for "sexual harassment." A broader definition is “workplace harassment” or “harassment, including sexual harassment.”

Wage Hour Claims
Most employment practices insurance policies exclude wage/hour and Fair Labor Standards Act-related claims. These claims are the fastest growing area of employment litigation. Ask your insurer to add coverage back in for the defense of such issues.

Special Insurance Provisions
Some employment practices policies include such special features as loss prevention services. Insurers may provide access to a hotline allowing free access to experts to discuss employment actions and situations. Some insurers offer a reduction in the deductible applied to a claim if the insured called an attorney before terminating an employee.

Trigger of Coverage - Claims Made
Most casualty insurance policies (general liability, automobile, workers' compensation) pay for events that occur during the policy period. For example, auto insurance pays for an accident that happens while the policy is in force. The lawsuit could be filed years after the event. The policy in force at the time of the accident responds. Coverage is triggered by a occurrence. These are called "occurrence policies."

EPLI policies (and directors’ and officers’ insurance) are claims-made policies. The coverage is triggered by a lawsuit. Claims-made policies pay for lawsuits and claims made during the policy period; the wrongful act could have occurred years before. Claims-made policies respond only to suits filed during the policy period.

(In other words, a claims-made policy pays based on the date of the lawsuit. An occurrence policy: pays based on the date of the accident or occurrence.)

Discovery Period/Tail/Reporting Period Issues
In the event that coverage is replaced or cancelled, protection may be desired for events that took place prior to expiration/cancellation, but for which no claim has yet been filed. This is called a "tail" or "extended reporting period." Make sure the new policy dove-tails with the expiring coverage for issues involving prior acts. Your insurance advisor should be able to walk you through this process.

Limit of Coverage
Most EPLI policies have a limit per occurrence and a policy limit of coverage for the total of all claims, called an aggregate limit. As claims are paid, you use up the limit of coverage available for future claims.

Defense Within Limit
Most EPLI policies include the cost of defending a claim (attorneys' fees, etc.) within the policy limit of liability. The defense costs of a claim can use up your insurance. Consider your potential legal costs in your calculations of how much coverage you need.

Questions for Your Agent
Learn if your coverage is right for your CU by talking with your insurance agent. Here are some questions to ask:

--Do we have employment practices liability insurance?

--Are our limits of coverage adequate?

--Is workplace harassment covered, or only sexual harassment?

--How does the policy define discrimination?

--Do other claims (directors’ and officers’, lender liability, etc.) reduce the coverage available for EPLI claims?

--Do EPLI claims reduce coverage available for directors’ and officers’ claims?

--Does our EPLI policy include coverage for defense of wage/hour claims?

--Do we have coverage for prior acts?

Scott Simmonds is the unbiased insurance guy, consulting on, but never selling, insurance. He welcomes questions from readers and will attempt to answer as many as possible in future columns.