Employment Practice Liability: Insurer's "Historical Practice" Held To Be Bad Faith
Claims against employers have become more commonplace. In response, insurance carriers have expanded their offerings of Employment Practice Liability Insurance (EPLI).
EPLI is a relatively recent form of liability insurance which provides protection for employers against claims made by employees related to wrongful employment practices. Generally, EPLI coverage limits range from $1 million to $25 million and most policies include coverage for legal defense within the aggregate insurance limits, along with covering costs for adverse judgments and/or settlements.
Coverage varies based on the type, size and risk profile of a business. Although EPLI coverage differs substantially between policies, it commonly covers claims related to discrimination (race, age, sex, disability, etc.), sexual harassment, wrongful termination or discipline, breach of employment contract, emotional distress, invasion of privacy, libel or slander, and employee benefits mismanagement.
Knowing the coverage scope of an EPLI policy is particularly important when an employer faces claims brought by a class of employees. A class action based on violations of law requiring minimum wages, holiday pay, or meal and rest breaks, for instance, can force an employer to expend significant time and expense in litigation. Often, numerous claims are included in the same complaint requesting retroactive payment and injunctive relief for the employer to change its practices.
Although these claims can seem integrally related in a complaint, the coverage under an EPLI policy for each specific claim can be drastically different. Indeed, an insurance carrier that treated a meal and rest break claim as a wage-and-hour law violation under its EPLI policy was recently ruled as a matter of law to have acted in bad faith for doing so.
In Travelers Cas. & Sur. Co. of Am. v. Spectrum Glass Co., Inc.,1 U.S. District Court Judge John Coughenour examined the obligations of an insurance carrier under an EPLI policy. The insurer's EPLI policy contained a "sub-limit" for $100,000 for defense costs to be paid in relation to "wage and hour" claims.2 The insurer determined that since the complaint sought relief that "looked like the other causes of action for failure to pay overtime and wages, [it] treated it as a wage and hour claim."3
In regard to the meal and rest break claim, rather than examining the claim separately to determine whether it fit within the wage-and-hour sublimit, Travelers "chose to characterize the break claim as one seeking unpaid wages - a conclusion that inured to its own benefit."4 Travelers came to such a conclusion even though the class action complaint requested that the policyholder be made to provide breaks in the future.5
As explained by the court, Travelers' self-serving characterization of the claims to fit within the sublimit of its EPLI policy harmed its policyholder by forcing Spectrum Glass to pay more than $500,000 in defense expenses after Travelers withdrew from defending the dispute (when the wage-and-hour sublimit was reached).6
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