How to eliminate EPLI coverage gaps.

• Author: WEISS, STEPHEN J.
• Position: Employment practices liability insurance - Brief Article

Negotiate your employment practices liability insurance policy to dramatically enhance its coverage.

IN MY LAST COLUMN ["Think Dual Coverage," Summer 2000], I alerted you to the fact that if you focus solely on directors' and officers' liability insurance coverage, you may overlook another form of insurance vital to protecting your personal assets -- employment practices liability insurance (EPLI). Those of you who are now considering EPLI likely will have the following questions:

Are all EPLI policies basically the same in terms of price and coverage?

Definitely not. How, then, do you select the best policy? Comparing policies on the basis of price is relatively easy. The difficulty lies in figuring out which has the broadest coverage. The problem exists because there is no standard EPLI form. There are dozens of insurers in this market with each using a different form.

The problem is exacerbated by the difficulty of quantifying the risk-management value of particular policy provisions. For comparative valuation purposes, how do you properly account for the fact that the Good Hands Co. policy covers six employment practices violations, and has six exclusions and restrictive definitions, whereas the Solid Rock Co. policy covers 15 employment practices violations but has 15 exclusions and restrictive definitions?

Are EPLI policies negotiable?

Absolutely. They are more akin to a commercial contract than an off-the-shelf insurance product. This does not mean that you should negotiate every EPLI policy presented for consideration by your broker and then, at the end of the process, pick the best. That would be too time consuming. Our preferred approach is to select one of the offered policies that is generally regarded as providing good coverage and that is competitively priced. We then negotiate that policy until we obtain the modifications considered essential to managing the client's risk.

If negotiable, what coverage enhancements should I seek?

All EPLI policies in the marketplace today have significant coverage shortfalls that you should try to eliminate. Two such shortfalls are described below as examples of possible enhancements.

* Definition of Wrongful Act. Coverage under an EPLI policy is limited to named perils -- that is, conduct expressly identified in the definition of "wrongful act." The broader the definition, the broader the policy's coverage. At the risk of oversimplifying, a good "wrongful act" definition is a long definition...