Differences in EPL Coverage
When a temporary employee makes an allegation of a claim falling under Employment Practices Liability coverage, that claim may be made not only against the temporary staffing firm that places the employee, but against the client company the employee is placed with. Depending on the terms of the contract between the staffing firm and the client company, the staffing firm may have agreed to defend and/or indemnify the client company from suits made by their employees.
For a staffing firm, how your Employment Practices Liability policy responds to these suits on behalf of your clients varies by insurance carrier, so it’s important to understand what coverage your policy provides under which circumstances.
Your first concern should be that your Employment Practices Liability policy responds to suits from temporary employees, not just from suits made by your internal corporate staff. Most policies provided by an insurance carrier that specializes in providing coverage to the staffing industry will insure you against suits made by temporary employees. However, policies that aren’t geared towards your industry may explicitly exclude suits from these employees or be unclear on whether it’s covered or not.
Once you’ve ensured your policy covers suits made by temporary employees, you should then determine how your policy responds when these suits are made against your client when you have agreed contractually to indemnify them. The way in which these suits are covered by different insurance carriers vary in three different areas:
1. Co-Defendant Requirement: Some policies will only provide coverage for your client when you and your client are both named as co-defendants in a suit, while others will cover your client regardless of whether you’re named as a defendant. When coverage is provided only when you’re a co-defendant with your client, coverage is then for your client while you remain a co-defendant in the suit. If you’re dismissed from the suit, coverage would cease at that time for your client under your policy.
2. Coverage for Defense Only or Defense and Damages: Certain insurance carriers only provide coverage for defense costs (attorney fees and other necessary expenses) for your client, while others will pay both defense costs and damages on behalf of your client.
3. Full Policy Limits or Sublimit Available: Your policy may allow your full policy limits to be utilized to pay defense costs and/or damages on behalf of your client, or it may limit the costs paid out on behalf of your client to a specified sublimit. For example, you may have a $1,000,000 per claim limit, but have a $100,000 sublimit for client coverage. In the event of a $300,000 claim made against your client, only $100,000 would be paid out by your policy, despite your $1,000,000 policy limit.
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