Ashland Insurance

Your local Independent Agents Since 1981

Employment Practices Insurance

Often issued as a separate policy, but also found as an endorsement to a liability or Directors & Officers Liability Insurance policy, this liability insurance protects employers against charges of discrimination, wrongful discharge, sexual harassment, hostile work environment, and similar work-related acts specifically alleging misconduct or negligence on behalf of the organization’s Directors and Officers, whether paid or unpaid. How does Employment Practices Liability Insurance apply when affecting the Directors and Officers Liability Insurance? Within the framework of most organizations that have boards of directors the expectations of stakeholders include requirements for the board members to ensure that policies and procedures within the company’s operating methods include either best practices or at least strong and appropriate protections in the area of institutional controls. Failure to do so, or apparent failure to do so can be considered negligence on behalf of board members. In these cases, it is clear that the lines are at least blurry between Directors and Officers Liability Insurance and actual and specific Employment Practices Liability Insurance.


These policies cover the employer, its employees acting in an official capacity, and its directors and officers, generally speaking, however policy language and expanding endorsements divulge that language of coverages and exclusions are constantly changing and evolving. They can also sometimes be endorsed to cover subcontractors and other stakeholders as appropriate.


Some liability policies include coverage for these risks, however if they are included they may likely cover only nominal coverage amounts and may be very narrow in scope or intention. Separate coverage normally makes more sense, as the risk can be placed with insurers that specialize in these forms of coverage, as specific as to the mission or industry that the entity operates in.


Further consideration must be given to the social acceptance of coverage within a particular state. Some states have legislation that is highly consumer-friendly and can be challenging when a business owner is under scrutiny for a perceived act of discrimination or harassment. Other states have evolved to hold a strong “buyer beware” stance when it comes to employer – employee relationships and expectations. There are no “knowns” regarding these situations, because case law and precedents also change, sometimes in “real time”.


We recommend an in-depth deep dive into how a prospect or client firm handles their policies, procedures, Human Resources functions, protections, employee reviews, hiring methods, etc. Upon review, some companies have embedded a culture of stability and clarity, and some leave their employee – employer relationships open for evolution as situations occur. Companies that choose to be reactive commonly have painful financial events that are not necessary.


Furthermore, perhaps a client firm is in a state whose employee protections are not as advanced as others, and a decision maker at the company believes that, in their case, that federal employee protection mechanisms do not apply. This is risky, however. Because once a right has been established by legislation federally, or in other states, employment law firms can commonly utilize tort claims to pursue compensation for employees who work in jurisdictions whose employee protections in a particular situation don’t apply, but using those established rights as boilerplate arguments, can pursue financial compensation. These risks are rising across the country, and adequate risk management mechanisms, like sophisticated HR Manuals, company meeting, open lines of communication with management, and a reasonable work force don’t always fully protect client companies. We highly recommend transferring the risk of defense, mitigation, and judgment to an appropriate insurance company for agreed premium to manage the risk of these sorts of lawsuits.


Contact us to schedule a review with one of our agents to see where you may fall in the scheme of exposure to these perils. We would appreciate the opportunity to help your company succeed despite bumps in the road both small and large.

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