Does your CGL, EPLI, or D&O insurance policy provide coverage?

The employer will want to immediately assess whether an employee’s claim is or may be covered under one or more of the employer’s insurance policies.

It is important to determine coverage early on because under many policies, an insurer requires pre-authorization for defense costs covered by the policy. Furthermore, prompt notification is essential to meeting any applicable filing deadlines specified in the policy.

Some employers may have insurance coverage under either a Comprehensive General Liability (“CGL”) policy or an Employment Practices Liability Insurance (“EPLI”) policy. Individual employee defendants also may be covered under Directors’ and Officers’ (“D&O”) Liability policies. Insurance coverage is a matter of state law and therefore an insurer’s obligation to defend or indemnify an employer will vary from state to state.

Often some claims will be covered while others are excluded. For instance, intentional torts that can be imputed to the employer are most often excluded from coverage under a general liability policy. However, the employer may be covered for intentional torts under its EPLI policy.

Sometimes employers may be covered against a negligence claim for torts committed outside the scope of employment. Local state laws may vary regarding whether there are any provisions governing indemnification for intentional discrimination or punitive damages.

If a claim is covered under an insurance policy, the carrier is obligated both to defend and indemnify the employer for its losses. The duty to defend is broader than the duty to indemnify and requires an insurer to defend an employer whenever any of the claims asserted in an action might possibly be covered under a policy. Thus, an insurer must defend the employer even though some claims may be excluded under a policy.

Where a question exists as to coverage, an insurer usually will issue a letter to the employer stating that it accepts the defense of the claim but reserves its right to deny liability at a later date. This is often referred to as a “reservation of rights” letter. Under some circumstances, an employer may be able to choose its own defense attorney upon receipt of this type of letter. An insurer is generally obligated to pay only those rates that it ordinarily pays to attorneys it retains in similar actions in the same community. An insurer may wait to resolve the issue of coverage until the action is concluded.