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2. EP
3. EP-00-01

Employment-Related Practices Liability Coverage Form (Claims-Made Form) - EP 00 01

1. What the form is

The EP 00 01, Employment-Related Practices Liability Coverage Form, is a standard insurance policy form developed by the Insurance Services Office (ISO) designed to protect employers from claims arising from employment-related wrongful acts. This "claims-made" policy means it covers claims first made against the insured and reported to the insurer during the policy period or an extended reporting period, if applicable. The form provides coverage for defense costs and financial settlements or judgments resulting from a range of employment-related allegations. These can include claims of discrimination (based on age, gender, race, etc.), harassment (including sexual harassment), wrongful termination, breach of employment contract, negligent evaluation, and retaliation, among others. The insurer has the right and duty to defend the insured against covered lawsuits, but this duty ends once the policy limit for defense expenses or payment of judgments/settlements is exhausted. The policy also typically allows the insurer to investigate incidents and, with the insured's written consent, settle claims.

2. Classes of business it applies to

The EP 00 01 is designed for a wide array of businesses, as nearly any employer can face employment-related claims. However, it is particularly relevant for:

• Small to Medium-Sized Enterprises (SMEs): These businesses may not have dedicated HR departments or extensive in-house legal counsel, making them vulnerable to employment practice errors and the resulting claims. For example, a small tech startup that is rapidly hiring might inadvertently engage in discriminatory hiring practices or a restaurant owner might face a wrongful termination suit from a former employee.
• Companies in Highly Regulated Industries: Businesses in sectors like healthcare or finance, which often have complex employment laws and regulations, can benefit from this coverage. For instance, a healthcare provider could face claims related to alleged violations of employee rights under laws like the Family and Medical Leave Act (FMLA).
• Businesses with a Large Number of Employees: The sheer volume of employees increases the statistical likelihood of an employment-related claim. A manufacturing plant with hundreds of employees, for example, has a higher exposure to potential harassment or discrimination claims than a small office.
• Organizations with High Employee Turnover: Industries known for high turnover, such as retail or hospitality, may see more claims related to hiring, firing, and workplace environment. A retail chain, for instance, might face frequent, albeit smaller, claims that can add up over time.

3. Special considerations

Several important factors should be considered when utilizing the EP 00 01 form:

• Claims-Made Basis: This is a critical feature. Coverage is triggered when a claim is first made during the policy period (or extended reporting period), regardless of when the wrongful act occurred (subject to any retroactive date). This differs from "occurrence" policies, where coverage is tied to when the incident happened. Insureds must be diligent in reporting claims or potential claims promptly. The form includes a 30-day grace period after the policy ends for reporting claims received during the policy period.
• Retroactive Date: Policies often include a retroactive date, meaning acts that occurred before this date are not covered, even if the claim is made during the policy period. When switching insurers, it's crucial to ensure continuity of coverage, possibly by negotiating the retroactive date with the new insurer.
• Extended Reporting Period (Tail Coverage): If the policy is canceled or non-renewed, the insured may need to purchase an extended reporting period to cover claims arising from acts that occurred before the policy ended but are reported after. The EP 00 01 offers an extended reporting period, which can be up to three years but requires an additional premium and must be requested within a specific timeframe (e.g., 30 days).
• Consent to Settle: The policy typically requires the insurer to obtain the named insured's written consent before settling a claim. However, refusing to consent might have implications for coverage.
• Defense Costs Erode Limits: In many EPLI policies, including those based on this form, defense costs reduce the available limit of liability. This means that a significant portion of the policy limit can be consumed by legal fees, even if no settlement or judgment is paid.
• Exclusions: The policy will contain various exclusions. Common exclusions might include claims arising from criminal, fraudulent, or malicious acts by the insured, or liabilities assumed under a contract. However, the policy may still provide a defense for an employer even if an individual employee committed a criminal act. Certain statutory violations might also be excluded, though key federal anti-discrimination laws are often covered.
• Prior Acts/Pending Litigation: Claims related to wrongful acts or litigation that were pending or existed before a specified date (Pending or Prior Litigation Date in the Declarations) are typically excluded.
• Definition of "Wrongful Act" and "Employee": The specific definitions of terms like "wrongful act" and "employee" are crucial in determining the scope of coverage. For example, "wrongful act" encompasses a list of employment-related offenses like wrongful demotion, negative evaluation, and harassment. The definition of "employee" can sometimes extend to prospective employees or even independent contractors in certain circumstances.
• Relationship with EP DS 00: The EP DS 00 is the Declarations page for the EP 00 01 Coverage Form. It contains specific details of the coverage for a particular insured, such as the policy period, limits of insurance, deductible amounts, the named insured, and any specific endorsements or modifications to the standard coverage form.

4. Key information for agents and underwriters

Agents and underwriters should focus on the following when dealing with the EP 00 01:

• Risk Assessment: This is paramount. Underwriters will scrutinize the applicant's industry, number of employees, geographic location (some jurisdictions are more litigious), employee turnover rate, and past claims history. The quality of the applicant's human resources policies, procedures, and training programs is a significant factor. For example, does the company have a clear employee handbook, anti-harassment training, and well-defined grievance procedures?
• Pricing and Deductibles: Premiums are influenced by the risk assessment. Higher risk profiles will command higher premiums. Deductibles (or retentions) are common, and the level of the deductible will impact the premium. Underwriters need to assess the financial capacity of the insured to handle the deductible.
• Coverage Gaps: Agents should be aware of potential coverage gaps. For instance, third-party claims (e.g., harassment claims by a customer against an employee) might not be covered unless specifically endorsed. Wage and hour claims (e.g., disputes over overtime pay) are often excluded or have significant sublimits. It's important to compare the ISO form with proprietary insurer forms, as the latter may offer broader coverage.
• Underwriting Guidelines: Insurers will have specific underwriting guidelines, which may include prohibited classes of business or specific requirements for HR practices. For example, a history of frequent employment-related lawsuits might make an applicant ineligible or subject to very high premiums/deductibles. Underwriters will also look for any planned or recent mergers, acquisitions, layoffs, or facility closings, as these events can heighten the risk of employment claims.
• Application Accuracy: Agents must ensure the application is completed accurately and truthfully by the applicant. Misrepresentations can potentially void coverage. The application will typically ask about prior claims and circumstances that could lead to a claim.
• Retroactive Date Management: When moving an insured from one claims-made policy to another, managing the retroactive date is crucial to avoid gaps in coverage. If a gap occurs, the insured could be unprotected for acts that occurred prior to the new policy's inception.
• Limits and Sublimits: Ensure the limits offered are adequate for the insured's exposure. Be aware of any sublimits for specific types of claims (e.g., defense costs for non-monetary relief).