Will your D&O coverage be there when you need it?

• Author: Weiss, Stephen J.
• Position: Directors' and officers' liability insurance

Don't let employment practices claims deplete the protection offered by your D&O policy.

Prospective outside directors typically refuse to join boards unless they will be covered by directors' and officers' (D&O) liability insurance. Although few prospective directors will go so far as to specify precisely what D&O coverage is acceptable, it is clear that they expect that an adequate policy limit will be obtained and maintained.

An adequate policy limit can be eroded by adding an employment practices liability insurance (EPLI) endorsement to a D&O policy. In today's highly competitive D&O insurance market, insurance companies sometimes offer EPLI endorsements without additional premium. But, of course, there are no free lunches. Adding an EPLI endorsement does not automatically increase the liability limit of the D&O policy.

This can be a problem because the dollar amount of protection afforded to directors and officers under their D&O policy now must cover additional types of claims (e.g., employment-related discrimination or defamation) and must be

shared with a new class of insured persons (e.g., employees who are not officers). A particularly egregious EPL claim against one or more covered employees conceivably could exhaust the entire D&O policy limit - leaving no coverage at all for directors and officers defending a lawsuit.

The best way to avoid this problem is to secure EPLI coverage through a standalone EPLI policy, rather than through an endorsement to your D&O policy.

To be sure, your overall insurance premiums will increase. But, in light of the well-documented increase in the frequency and severity of employment practices claims, the investment in a stand-alone EPLI policy may make good sense for your company.

It is easy to understand why employment-practices claims have increased so dramatically in this decade. At both the federal and state levels, employment laws have been added or expanded by amendments.

Another key factor is the enormous attention given to this area by high-visibility events: the 1991 confirmation hearings for Supreme Court Justice Clarence Thomas; the $100 million-plus verdicts and settlements in recent years in cases against Texaco Inc. (race discrimination), State Farm Insurance Co. (gender discrimination), and Shoney's Inc. (race discrimination); and the 1994 lawsuit filed by Paula Corbin Jones against President Clinton.

Stand-alone EPLI policies have several desirable coverage features you won't find...