Securing Coverage for Wrongful Termination.

• Author: Wolf, Daniel
• Position: FOREFRONT

Employers can be subject to a wide array of employment-related claims and often purchase employment practices liability insurance (EPLI) to ensure that they have broad coverage if and when they face such claims. For example, employers that purchase EPLI would expect that their insurer would provide coverage for any wrongful termination or retaliation claims that employees might assert.

Securing such coverage in California can be challenging, however. Employment practices liability insurers in California frequently contend that Section 533 of the California Insurance Code precludes any coverage whatsoever for wrongful termination or retaliation claims under EPLI policies, even under policies that include terms that expressly provide coverage for these claims.

Policyholders should take specific steps to respond effectively when an insurer asserts that Section 533 precludes coverage for a wrongful termination or retaliation claim, namely: 1) understand the terms of the EPLI policy; 2) review the bases for the insurer's denial; and 3) identify the flaws in the insurer's position and forcefully demand that coverage be provided consistent with the terms of the EPLI policy and applicable law.

EPLI COVERAGE TERMS

Most EPLI policies provide express coverage for wrongful termination and retaliation claims. For instance, a form policy used by numerous employment practices liability insurers provides coverage for "wrongful discharge or termination of employment, whether actual or constructive" and "retaliation, including retaliation for exercising protected rights, supporting in any way another's exercise of protected rights, or threatening or actually reporting wrongful activity of an insured such as violation of any federal, state or local 'whistle blower' law." Other EPLI policies use variations of these terms, but regardless of the precise language used, most EPLI policies explicitly include wrongful termination and retaliation claims within the scope of coverage promised to the insured.

INSURER ARGUMENTS AGAINST COVERAGE

Insurers that contend that EPLI policies never provide coverage for wrongful termination and retaliation claims in California base their argument on Section 533 of the California Insurance Code. In part, Section 533 provides that an "insurer is not liable for a loss caused by the willful act of the insured." Relying on this brief code provision, insurers argue that any wrongful termination or retaliation claim must arise from an...