Is Employment Practices Insurance Coverage a Good Risk?
Employment lawsuits in California routinely assert a panoply of statutory and common law tort claims, each of which carries the potential for a large and unpredictable jury award of emotional distress and punitive damages. Given the large and unpredictable exposure of these cases, it is hardly surprising that there has been an explosion in the number of companies purchasing Employment Practices Liability Insurance (or "EPLI").
These policies seemingly offer coverage for damages arising from "wrongful termination," "retaliation" and "sexual harassment." To evaluate the true costs and benefits of EPL insurance, however, employers need to look beyond the mere covering language of the policy itself -- they must also examine whether the apparent indemnity rights are actually permitted under California law. Many employers will be surprised to learn that much of the coverage promised by EPL insurance is illusory under California law.