Providing Notice of a Covered Claim to Your EPLI Carrier
Employers are relying with increasing frequency on Employment Practices Liability Insurance to help protect against the cost of litigating employment disputes. Those policies, however, often contain very strict provisions about providing notice to the insurer not only of actual claims made against the employer, but also of potential claims. Employers need to be aware of these notice obligations in order to avoid losing the benefits of the policy they purchased.
Eric Little, a friend of our firm who specializes in representing insurance policyholders who have disputes with their insurers, gives the following guidance about providing notice under EPLI policies.
By Eric Little:
Employers rely on insurance to fund the defense of a wide variety of employment related litigation. Especially in these uncertain economic times, most Employers no longer have the luxury of conducting business in California without Employment Practices Liability Insurance (EPLI) in addition to Commercial General Liability Insurance (CGL).
Since many Employers have previously had CGL claims—say, a customer “slip and fall” on company premises—but have not faced employment claims under their EPLI coverage, most Employers have not considered the significant differences between CGL policies and EPLI when providing notice of a claim.
Most CGL policies have an almost lazy approach when it comes to the Employer’s obligation to notify the insurer of a claim. In California, the general rule is that the Employer is required to provide “immediate notice,” but the penalty for not doing so is minimal. If the claim is in litigation, the Employer won’t recover litigation costs prior to the date that the notice is provided to the insurer. The insurer can only refuse to provide policy benefits—typically, future litigation costs and settlement costs—if the insurer is “prejudiced” by the late notice. It is nearly impossible for an insurer to establish that it has been prejudiced.
But EPLI policies have totally different notice requirements. They require immediate notice and that the notice be provided during the policy period in which the Employer first has knowledge of the claim or potential claim.
And the “knowledge” issue can be tricky for Employers. Who has knowledge is important. Knowledge by someone in Human Resources is certainly enough, but often a low level supervisor’s knowledge is enough to obligate the Employer to provide notice to its EPLI carrier.
What knowledge is also important. An employee shouting “I’ll see you in court” after getting fired is certainly enough knowledge to require an Employer to provide notice to its EPLI carrier, but there are many, far more subtle situations which insurers argue require notice. Areas often missed are knowledge acquired through workers compensation proceedings, DLSE proceedings, exit interviews of employees, and employee complaints. Did the employee complain about: discrimination, retaliation, harassment, wrongful termination, employment related misrepresentation, defamation, libel, slander, invasion of privacy, failure to promote, wrongful discipline, denial of training, deprivation of career opportunity or seniority, negligent supervision of others, negligent training, or negligent retention? These are but some of the “what” knowledge that triggers an Employer’s obligation to provide notice.
When the employer has knowledge is critical. The insurer will examine the insurance claim to determine when the Employer first had knowledge of the claim. If the insurer discovers that the Employer had knowledge prior to the policy inception, the insurer likely will deny the claim.
There are many considerations which go into providing notice. Describing all of them is beyond the scope of this post. But and increased awareness of the above pitfalls can protect Employers from the most common mistakes.
Eric Little is Managing Partner of Little Reid & Karzai, LLP, a boutique law firm in Irvine, California specializing in representing insurance policyholders who have disputes with their insurers. Mr. Little has more than 15 years experience in the field and is responsible for many appellate decisions vindicating insurance policyholders’ rights. He practices throughout California.