1. Forms
2. BP
3. BP-05-89

What the form is

The BP 05 89 Employment-Related Practices Liability Endorsement is an Insurance Services Office (ISO) form designed to be added to a Businessowners Policy (BOP). Its primary purpose is to provide coverage for liability arising from employment-related wrongful acts committed by the insured. This endorsement offers claims-made coverage, meaning the policy in effect when the claim is first made against the insured is the one that responds, provided the wrongful act occurred on or after the specified retroactive date and before the end of the policy period. Defense costs are typically included within the limits of liability shown on the endorsement schedule.

Classes of business it applies to

This endorsement is relevant for a wide range of small to medium-sized businesses that have employees and are therefore exposed to employment-related lawsuits. Examples include, but are not limited to:

• Retail stores
• Restaurants
• Small professional offices (e.g., accountants, consultants)
• Service businesses (e.g., repair shops, salons)
• Light manufacturing operations

Any business, regardless of size, can face claims alleging wrongful termination, discrimination, harassment, retaliation, or other employment-related misconduct. For instance, a small restaurant could face a claim from a former employee alleging wrongful termination due to discrimination.

Special considerations

Several important factors should be considered when using this endorsement:

• Claims-Made Basis: It is crucial for the insured to understand the claims-made nature of the coverage. This means a claim must be made and reported during the policy period or any applicable extended reporting period (ERP) for coverage to apply. The wrongful act must also have occurred after the retroactive date.
• Retroactive Date: The retroactive date specified in the endorsement is critical. Acts occurring before this date are generally not covered. Maintaining continuity of coverage or purchasing prior acts coverage is important to avoid gaps.
• Extended Reporting Period (ERP): If the policy is canceled, non-renewed, or if the insurer changes the coverage to an occurrence basis, the insured may need to purchase an ERP (also known as "tail coverage") to cover claims made after the policy period for wrongful acts that occurred before the policy ended but after the retroactive date.
• Defense Within Limits: As defense costs are often included within the policy limits, significant legal expenses can erode the total amount available to pay settlements or judgments.
• Exclusions: The endorsement will contain specific exclusions. Common EPLI exclusions can include claims related to wage and hour disputes, strikes and lockouts, or violations of certain labor laws like the National Labor Relations Act or the Worker Adjustment and Retraining Notification (WARN) Act.
• Consent to Settle: Policies may contain a "hammer clause" or consent to settle provision, which can impact how settlement negotiations are handled if the insured and insurer disagree on settling a claim.
• Market Alternatives: While BP 05 89 is an ISO form, many insurers offer their own proprietary Employment Practices Liability Insurance (EPLI) policies or endorsements, which may provide broader coverage or have different terms and conditions.

For example, if a business owner is transitioning from another EPLI policy, ensuring the retroactive date on BP 05 89 aligns with their prior coverage is essential to prevent a gap in protection for past acts.

Key information for agents and underwriters

Agents and underwriters should focus on the following when dealing with BP 05 89:

• Risk Assessment: Thoroughly evaluate the applicant's employment practices, including hiring procedures, employee handbooks, anti-discrimination and anti-harassment policies, training programs, and procedures for handling employee grievances and terminations.
• Employee Count and Turnover: The number of employees and the rate of employee turnover can be indicators of potential exposure. Higher turnover might suggest a greater risk of claims.
• Industry-Specific Risks: Certain industries may have higher EPLI exposures (e.g., hospitality, healthcare).
• Prior Claims History: A history of employment-related claims can significantly impact underwriting and pricing.
• Limits and Deductible: Recommend appropriate limits of liability and deductible levels based on the size and exposure of the business. Ensure the insured understands how the deductible applies (e.g., per claim, per claimant).
• Educating the Insured: Agents must clearly explain the claims-made nature of the policy, the importance of the retroactive date, and the availability and cost of an ERP.
• Underwriting Guidelines: Underwriters will scrutinize the application for completeness and accuracy, paying close attention to the company's HR practices and loss history. They will also determine the appropriate retroactive date to be offered.

An agent, for instance, should advise a rapidly growing tech startup about the increasing importance of EPLI coverage as they hire more employees and formalize their HR practices. Underwriters, in turn, would carefully review the startup's employee handbook and dispute resolution mechanisms before offering terms.