Many companies purchase employment practices liability (EPL) insurance to cover the costs of defending a variety of claims and losses related to employment litigation. These may include negligent hiring, failure to promote, wrongful termination and a host of other claims brought under discrimination, contract or tort theories. There are, however, limitations on what an EPL policy may cover. For example, attorneys’ fees may be covered, while losses are not. Potentially expensive claims arising under the Fair Labor Standards Act (FLSA) or state wage and hour law, WARN Act, ERISA or severance pay plans may be excluded. Coverage for defense costs may count towards the policy limits, eating into the amount available for a settlement. Insurers may also be allowed to make decisions as to choice of defense attorneys, whether to mediate, and whether to settle and for how much.
Since a great number of employment disputes today go to mediation and then settlement, it is important to know that the clock could be ticking on what a company can pay out for the process. There are, however, ways to build a smoother process.