D&O Insurance Policies for Officers Directors and EPLI Coverage in D&O Liability Insurance Policy

EPLI Coverage in D&O Liability Insurance Policy

D&O Insurance Policies for Officers Directors

Employment Practices Liability Insurance (EPLI) coverage also has become a common addition to corporate coverage - often by endorsement to the D&O liability insurance policy or as a stand-alone policy issued to the company. This coverage typically protects directors, officers, employees and/or the company against employment-related claims brought by employees and, in certain circumstances, specified third-parties. For example, it provides coverage for wrongful dismissals or failures to promote, sexual harassment, and other violations of federal, state or local employment and discrimination laws brought by the company’s employees. EPL claims have also seen a dramatic increase in frequency and severity over the past decade.

EPLI Coverage in D&O Liability Insurance Policies

Most D&O liability insurance policies do not impose a duty to defend on the insurer. They do, however, provide coverage for defense costs and give the insurer the right to associate with the defense and approve defense strategies, expenditures, and settlements. Buying employment practices liability insurance policy each office director must remember about it.

(A) The D&O insurer can not impose its choice of counsel on an insured - the insured generally has the right to select counsel, subject to the insurer’s consent. D&O policies typically provide that an insurer may not unreasonably withhold approval of an insured’s choice of counsel. For example, it provides liability insurance coverage for wrongful dismissals or failures to promote, sexual harassment, and other violations of federal, state or local employment and discrimination laws brought by the company’s employees. This feature is important to the insured corporation, which typically has developed ongoing relations with corporate and litigation counsel that it would want to use in high-stakes litigation against the company.

Reimbursement and Advancement of Defense Costs in D/O Policies.

(B) Although D&O insurers generally do not have a duty to defend, D&O policies do cover defense costs. The primary questions that arise in connection with the payment of defense costs regard (1) control over the officer and director liability insurance policy costs incurred and (2) when the insurer must make defense payments. In connection with the first question, although insurers do not control an insured’s defense, under D&O policies they are required to reimburse only reasonable defense costs arising out of covered claims. Thus, an insured or his chosen counsel does not get a blank check.

Whether a D&O insurer must, or should, advance defense costs - that is, pay them as they are incurred - is a common question. Many of the issues affecting EPLI coverage cannot be resolved until the employment practices liability insurance claim has been resolved. Specifically, certain exclusions only apply after a finding of fact has been made. For example, as discussed below, directors and officers insurance policies generally exclude coverage for losses arising out of fraud. The exclusion only applies, however, where there is a final judgment finding fraud. Thus, where fraud is alleged, coverage is uncertain until the completion of the claim. In such situations, directors and officers insurers may have an interest in not advancing defense costs until coverage is certain. However, office and diractor insurers have an interest in seeing their insured vigorously defend claims against them. A vigorous defense can be a costly endeavor that may be well beyond the means of an insured. Thus, many D&O liability insurance policies provide that insurers advance defense costs under the condition that, should the facts ultimately demonstrate a lack of coverage, the insured will reimburse the advanced monies.

Provisions and Exclusions from D&O Liability Insurance Agreements.

Twenty years ago, underwriters offered D&O policies based on two basic forms, and courts had seen very few cases in which they were asked to interpret D&O liability policies. Today, the number of office and director liability insurance policy forms and cases interpreting them has multiplied. Although there are trends and standards within the industry, the specific language found in these policies differs from insurer to insurer and from policy to policy. Any EPLI coverage analysis must take into account the specific language found in the policy at issue. As a general matter, clear director and officer liability insurance policy language will govern the application of coverage to a particular directors and officers liability insurance claim made against company personnel.

EPLI Coverage in D&O Liability Insurance Policy

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