Employment Practice Liability Insurance to Buy or Not to Buy?
By: RICHARD A. ROSS
January 1998
In the Spring 1995 issue of Employment & Labor Law Focus, we published an article about insurance coverage for employment-related claims and litigation. In the past three years, employment litigation has steadily increased and many employers have purchased or are considering purchasing insurance. Many insurance companies now offer a policy called Employment Practice Liability (EPL). Most EPL policies are written to cover the most common employment-related claims, such as discrimination, sexual harassment, breach of contract, defamation, negligent hiring, supervision and retention. The EPL policies, however, generally exclude "intentional" conduct from coverage. Since most discrimination and sexual harassment claims, for example, must be found to be intentional to find liability, the EPL coverage may be challenged by the insurance carrier at that time. Although EPL policies have been on the market for several years now, the issue of coverage in connection with intentional claims has yet to be resolved in court. Thus, employers, when purchasing the coverage, should be aware of this potential issue. In addition, as many employers have discovered, in the absence of a provision in the EPL policy (or for that matter in a Commercial Business Liability Policy) giving the insured the right to help select their attorneys, the insurance carrier will select the attorneys to defend the action when the employer tenders the case to the insurance carrier. Most insurance companies will use the legal fees of the attorneys (i.e., the hourly rate) as a primary consideration in selecting counsel. As a result the selected counsel often do not have extensive experience in employment litigation. Also, although required by the ethical rules to represent the interests of the employer, there may be a temptation to pay more attention to the concerns of the insurance company. We strongly recommend that when purchasing or renewing the EPL or any other type of insurance policy, the employer consider negotiating a provision regarding the hiring of counsel to protect his or her interests. We suggest including the following language in the policy:
"Notwithstanding any other provision of this policy to the contrary, it is expressly agreed that in the event the insured submits a claim which includes any covered claim and the insurance company assumes the defense, in whole or in part, whether under a reservation of rights or otherwise, the selection and appointment of attorneys to defend any or all of the claims shall be by mutual agreement of the insured and the insurance company. Regardless of whether the insurer pays all or some of the attorney's fees, the insurer shall not interfere with the independence of the professional judgment of the attorney or the attorney client relationship between the insured and the attorneys who are retained to defend any or all of the claims."
Many employers have long-standing relationships with their attorneys and would prefer to have those attorneys represent them in any employment litigation. The regular counsel is generally familiar with the company, its culture, employees and human resource objectives. Moreover, continued representation by the company's regular outside counsel should further promote preventive measures that the company will want to pursue on an ongoing basis. The above suggested provision provides a vehicle for the employer to achieve those goals.
The inclusion of the suggested provision will at least provide the employer with an opportunity to negotiate an arrangement with the insurance company for some type of fee-sharing arrangement. Some insurance companies will agree to pay a percentage of the fees proportionate to the number of covered claims. Other insurance companies will agree to pay a maximum hourly rate, with the balance paid by the employer. Finally, some insurance companies will "pre-approve" counsel for covered claims, thereby avoiding any dispute when a claim is submitted.
Whatever your company decides to do, you should be aware that you probably will not have the right to be involved in the selection of counsel unless some provision is made in the policy.