There are a plethora of insurance products which may protect businesses, public entities, directors, officers, and managers from various risks that might arise related to employment. These include, but are not limited to, employment practices liability insurance (“EPLI”), directors and officers insurance, public officials liability insurance, fiduciary liability insurance for employee benefit plans, and workers’ compensation insurance. While these coverages can be confusing, you owe it to yourself and your company or public entity to consider all of your insurance when an employment claim arises, including policies not specifically designed for employment claims. Your premiums may have bought you more protection than you realize.
Insurance policies specifically designed for employment claims generally cover a targeted range of liabilities. EPLI, for example, typically provides coverage for an “employment practices wrongful act” or similar offense, which is defined to include wrongful termination, discrimination, sexual harassment, and retaliation claims. EPLI is frequently a “claims made” policy, which means that the employment claim must be brought against a person, business, or public entity that is protected by the policy and then reported to the insurance company within a specific period. This period is typically bounded on the front end by the start of the policy period or a retroactive date set forth in the policy declarations and on the back end by the end of the policy period or an extended reporting period if the policyholder purchases such an extension.
EPLI commonly imposes on the insurer a duty to defend the policyholder, which means, at a minimum, that the insurer needs to pay for legal counsel to defend the policyholder against the employment claim. The amounts expended by the insurer for defense costs are often subtracted from the policy limits. As a result, there may be substantially less available to pay any damages that are ultimately owed to the person who brought the employment-related claim.
General liability insurance, on the other hand, is frequently sold in the form of commercial general liability or public entity liability policies and provides coverage for property damage, bodily injury, and personal injury claims. Personal injury claims generally include false arrest, malicious prosecution, wrongful eviction, wrongful entry, slander, libel, and advertising injuries. General liability insurance, in contrast to more targeted policies like EPLI, provides a broader range of coverage that is then narrowed by an extensive list of exclusions. General liability insurance also is commonly an occurrence-based coverage, which means that the policyholder is owed protection if the event or accident giving rise to the liability occurred during the policy period, even if a claim is made after the end of the policy period. While policyholders should always report claims promptly to prevent insurers from raising late notice defenses, these policies allow more flexibility than claims made coverages regarding when claims must be reported to the insurance company. General liability policies also provide for a duty to defend the policyholder, but the amounts expended on that defense typically are not counted against the policy limits. This means that a lengthy court battle does not risk substantially reducing the amount available for damages that may be awarded with an adverse judgment.
The differences in reporting deadlines and defense limit reductions can make general liability policies a significantly more attractive option for your coverage claim, but insurance companies, and maybe even your insurance agent or broker, will tell you that there is no coverage for employment related claims. Don’t take their word for it! In Indiana, as in many other states, coverage is controlled by the claim that is asserted against you and the terms of the policy you purchased. It does not matter whether the insurance company says now it “intended” to provide protection for a particular type of claim under a specific type of policy. If policy terms are open to more than one reasonable interpretation, they are considered to be ambiguous and the policyholder’s interpretation controls. Exclusions to policies are construed narrowly and the insurance company has the burden of proving that they apply. Indiana’s approach helps to balance the playing field between policyholders and insurers because insurance companies control the language of the policies. As the Indiana Supreme Court has repeatedly observed, “[t]he insurance companies write the policies; we buy their forms or we do not buy insurance.” State Auto. Mut. Ins. Co. v. Flexdar, Inc., 964 N.E.2d 845, 852 (Ind. 2012).
General liability, with its broader coverage grant and list of exclusions, is likely to provide more protection than you anticipated. With courts construing policy language to effectuate indemnity and reading exclusions narrowly, there is a significant possibility that all or a portion of any employment-related claim you receive could be covered under your general liability policy. For example, general liability policies typically exclude personal injury coverage for employment related claims, but the terms of the exclusion are designed to line up with the coverage grant for EPLI policies. Thus, the exclusion is limited to personal injury arising from a refusal to employ, termination of employment, coercion, demotion, failure to promote, harassment, and similar claims. This leaves space for claims related to a search of an employee’s locker or personal property that was brought into the workplace, or the compromising of an employee’s personal information, whether inadvertently or as a result of hacking, as personal injury claims related to an invasion of privacy. Claims arising from an employer’s statements to other employees or the public about a termination could be personal injury claims related to libel or defamation. There is also commonly an exclusion for bodily injury to an employee arising in the course of his or her employment. Potential claims remain, however, related to injuries occurring before or after work hours in the parking lot, employer-provided housing, or other off-site locations. Even if claims covered by general liability insurance are brought alongside excluded claims, such as wrongful termination, you will still be entitled to the more favorable duty to defend that does not reduce policy limits. So long as at least a portion of the employment claim potentially is covered by the policy, the insurance company must provide a full defense under Indiana law.
What should you do to make sure you are ready for the next employment related claim? Keep all of your insurance policies from current and prior years in one location and revise any document destruction policy so that insurance records are retained indefinitely. When you receive notice of a claim, carefully consider all aspects of the claim and then read the language of each of your policies. Do not accept your insurance company’s or your broker’s explanation of why the claim is not covered. Consult an experienced coverage attorney. The attorney will be able to help you determine if you have a viable insurance claim for low or no cost. You, like many policyholders, have paid insurance premiums for many years. When an employment claim arises, you should make sure that you and your company or public entity receive the full value of your policies.