As harassment hits the headlines, what can insurance brokers learn?

Get ‘down into the weeds’ of your client’s EPLI coverage, says attorney

As harassment hits the headlines, what can insurance brokers learn?

Professional Risks

By Bethan Moorcraft

It’s only a matter of time until the next high-profile celebrity or politician is accused of sexual harassment or workplace indecency – but it’s not just the rich and famous at risk of allegations.

Every organization should be asking themselves what they need to do to avoid a hit to their business if faced with an accusation, according to experts in employment practices liability insurance (EPLI) at law firm Blank Rome LLP.

First things first: insurance brokers need to “get down into the weeds” of insureds’ EPLI policy forms and coverages to communicate their implications, variations and legal requirements, said David Thomas, Partner at Blank Rome LLP. 

“There are a couple of ways in which there may be variations in EPLI coverage,” he explained. “I have seen policy forms in which the right to select defense council against an [EPLI] claim may be implicated by the nature of the claim asserted. Others require the use of panel [defense] counsel for claims that assert harassment or other misconduct by managing directors or high-level officers of the company -  but don’t require a panel counsel for claims that do not.

“Variation might also be seen in certain aspects of the coverage based on the rank of individuals named in the claims. These variations are very policy specific, which really underscores the need for brokers to get down into the weeds of the language used in the policy forms.”

A frequent dispute that arises in the EPLI space revolves around the rates insurance companies are willing to pay for defense counsel for sexual harassment or similar claims. EPLI policies are often written either on a duty to defend basis (where the carrier is obligated to hire and pay for defense counsel, or provide a previously retained panel counsel) or on a duty to pay for defense counsel basis (where the carrier covers defense costs).

According to Thomas, the conflict often starts between insureds with the latter type of policy and their insurance carriers, who “balk at the rates” of the insured’s selected defense counsel and deem the costs “way too high and in excess of what the carriers believe they ought to pay.”

“It’s important for insurance brokers to discuss these matters thoroughly with their clients and to go through the pros and cons of a duty to defend policy versus a duty to pay defense costs policy,” Thomas told Insurance Business.

“They should also find out what the insurance carrier typically pays panel counsel within that particular locality and/or find out what rates the insurance carrier is typically willing to reimburse counsel that are retained by the policyholder. It’s worth exploring the rates that are paid first and foremost at the operational center or headquarters of the client, but then also in other locations where the client may have operations, because the insurance carrier may deem a particular rate to be appropriate in one jurisdiction but not in a different one.”

There are also some arrangements where the policyholder is allowed to select a defense counsel from a pre-approved panel list and at agreed rates. Brokers can work with insurance carriers on behalf of their clients to set this up so “there’s no dispute at the time a claim comes in” and defense needs to be mounted, explained Thomas.

“Transparency is the issue. Insurance carriers are sometimes resistant to elaborate on the rates they’re willing to pay, which simply underscores the prudence of brokers raising the issue up front and in a cooperative fashion to get a good sense of what carriers do in this arena,” he commented. “The policyholder will then be better equipped to deal with a claim, and will know what to expect in terms of defense counsel and rates that might need to be paid.”

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