What is Employment Practices Liability?
It provides coverage for a broad range of employment-related actions. In addition to discrimination, harassment and wrongful termination, the policy responds to allegations of wrongful failure or refusal to employ or promote, or wrongful demotion, defamation, libel, slander, disparagement, misrepresentation, malicious prosecution, or invasion of privacy, wrongful infliction of emotional distress, mental anguish, or humiliation, breach of an actual or implied employment contract, wrongful failure or refusal to adopt or enforce workplace or employment practices, policies or procedures, wrongful discipline and retaliation.
Directors & Officers Liability
What is Directors & Officers Liability?
It provides coverage for your directors & officers for defense costs, settlements and judgments related to errors and/or omissions in conducting their duties for the company. It also provides coverage for the company, if it indemnifies the directors & officers, and the company itself if it is named in a suit. Claims typically arise from shareholders, employees, creditors, customers, competitors, regulators and other third parties for a range of allegations.
What is Fiduciary Liability?
Fiduciary Liability policies provide coverage for an actual or alleged breach of fiduciary duty and wrongful administration of employee benefit plans or violation of ERISA regulations. Claims often arise from allegations breach of duty by the Plan Administrators/Trustees and include: ERISA Violations, Conflict of Interest in Investment of Plan Assets, Negligence, Inaccurate Year-End Reporting, Imprudent Investment Decisions, Delinquent Employer Contributions, Mishandling of Plan Funds and Incompetence.
What does Crime Cover?
It covers claims related to the actual destruction, disappearance, wrongful abstraction or computer theft of money and securities and other property. This includes employee theft/forgery, employee benefit plan dishonesty, robbery, safe burglary, transit, computer and funds transfer fraud and depositors’ forgery coverage.
Why Does My Business Need Directors & Officers Liability Coverage?
- Directors and officers can be held “personally” liable for breaching their fiduciary duty.
- Plaintiffs often cite management’s inability or unwillingness to make a decision or pursue a course of business as the reason for their actions.
- Defense costs for such litigation can run into the millions, or tens of millions of dollars.
- Litigation forces a company to divert capital and resources away from pursuing business activities and into defending its management.
- Management must spend a great deal of time in depositions and other court hearings, and not focused on the needs of the organization.
- The company is not legally allowed to indemnify certain allegations against its D&Os.
- The company may not have the financial ability to fulfill its obligation to indemnify its D&Os.
- Investigations by governmental and regulatory entities can create enormous legal bills – even if no wrongdoing is found.
- Shareholders frequently sue for inadequate or inaccurate financial reports or detail in private placement documents.
Who does a Directors & Officers Liability Policy Protect?
- All past, present and future directors and officers against claims for mismanagement, misrepresentations, actions, errors, omissions, etc. (the policy is not name specific)
- Covers the individuals, regardless of whether the allegations have any merit, and
regardless if the company is required or able to indemnify them.
- Coverage may extend to the Entity for certain types of claims, including:
- Securities Claims
- Employment Practices Claims
- Private Placement of Securities
What Does A Directors & Officers Policy Cover?
- The policy will pay loss for Claims against the directors and officers while acting in their capacity as Directors or Officers.
- Loss includes Defense Costs and Damages, like settlements and judgments.
- Claims are generally for economic damages, but may include some non-monetarydamages.
- Covers the indemnification obligation of the Organization to the Individuals.
How Prevalent are D&O Lawsuits against Private Companies?
In a recent Chubb Insurance survey, 37% of executives from privately -held organizations polled believed that they would be sued by customers in the coming few years. Roughly 30% felt vendors would sue while 21% feared suits from shareholders. Statistics show that the most common suit against D&Os are employment-related claims. Coverage in these employment-related situations will depend on the coverage provided by the D&O policy.
Why Does My Company Need Employment Practices Liability (EPL) Insurance?
Fast grown, long hours and a young workforce are all contributing factors to employment practices claims. Start-ups are especially vulnerable because they can’t afford a person dedicated to human resources until they reach a certain size level.
When Does My Company Have EPL Exposure?
Companies have EPL exposure at almost all times, including:
When They INTERVIEW
When They HIRE
When They DO NOT
When They EMPLOY
When They PROMOTE
When They DISCIPLINE
When They PAY
When They TERMINATE
How Frequent Do EPL Claims Occur?
In California, the likelihood of an employment practices claim being filed is quite high. In fact, it is really not a matter of “if” a clam is filed against your company, but rather a matter of “when.” Some statistics about claims against employers in the state of California include:
- California leads the nation in the number of employment allegations leveled against employers
- Half of all lawsuits filed against employers are employment-related
- California has the largest number of lawyers in any state as well as the highest ratio of lawyers to citizens
- California labor and employment laws are the broadest in the nation
Aren’t Most EPL Claims Frivolous and Thrown Out?
Currently, plaintiffs win about 70% of all employment cases in California. However, even if you end up in the minority and no award is given the plaintiff, your attorney’s costs can still run well into the hundreds of thousands – or even higher. EPL policies pay these defense costs.
What Is The Typical Cost of an EPL Claim?
The average cost of a suit is rapidly on the rise. In 1997, the median award was $75,000. By 2003, that number had risen to $173,000 – nearly a 125% increase.
What Can My Company Do To Protect Against EPL Claims?
There is no sure fire prevention method. A well-designed employee handbook that is enforced from the top down along with ongoing training for your managers in the areas of harassment, discrimination, ADA compliance, etc. are solid methods of trying to control this exposure. Purchasing an EPL policy is a nice safety net in the even your other methods fail to work.
What Is Fiduciary Liability?
Under the Employee Retirement Income Security Act of 1974 (ERISA), fiduciaries are personally liable for losses to a benefit plan incurred by reason of a breach of their duties. Although the duties of a fiduciary may vary, many face serious exposures in the course of their daily operations.
Why Does My Company Need Fiduciary Liability?
The individuals who administer employee benefit plans (fiduciaries) are subject to personal liability under ERISA, the federal law that governs employee benefit plans. Plan fiduciaries cannot protect themselves completely from personal liability under ERISA. Even with a participant directed 401(k), plan fiduciaries can be held liable for a variety of reasons including the selection of plan investment options, monitoring those investments, and educating employees on those options.
What’s The Difference Between Fiduciary Liability And An ERISA/Fidelity Bond?
ERISA/Fidelity bonds are required by law. ERISA requires a minimum bond of 10% of the assets in the Plan(s) be in place during the term of the Plan. This is a form of insurance for dishonesty situations. When dishonest administrators or trustees have financially harmed an employee benefit plan, these bonds may be used, but only for the benefit of the plan and the plan's beneficiaries. This bonding insurance will not protect the trustees themselves from liability claims and is thus completely distinct from fiduciary liability insurance.
Doesn’t My Employee Benefits Liability (EBL) Coverage Include Fiduciary Liability?
EBL insurance policies cover many claims arising out of errors or omissions in the administration of a benefit plan, including the failure to enroll an employee in the plan as well as the administration of improper advice as to benefits. EBL insurance does not cover all situations of fiduciary responsibility, especially those regarding imprudent investment of funds and others highlighted in this section.
Why Does My Company Need This Insurance?
While stringent internal controls and sound administrative and management practices help limit exposures, they can never eradicate the risk completely. Warning signs may be missed or not acted upon on time. Areas of greater risk may not be identified until too late. Contingency plans put in place to respond quickly upon the discovery of fraud may not have been communicated effectively to all staff. While internal "whistle -blowing" may be regarded as an effective tool in combating fraud, not every organization has a corresponding "no-blame" culture to promote this practice. The opportunity to commit fraud is there for everyone. This is why an insurance policy can act as a safety net.
Who Needs It?
Most Businesses, particularly those with employees, should have some form of Commercial Crime coverage. Statistics have shown that Crime claims occur frequently – not quite as high as workers compensation issues but on par with employment practices claims. While claim amounts are not typically catastrophic in size, the frequency of these claims is a significant problem most employers face.
Why Doesn’t My Property Policy Cover Employee Theft?
Property policies typically exclude theft committed by an employee, or coverage is limited to a specified amount, such as $10,000.
Isn’t there Some Crime Coverage Included in a Typical Package Policy?
Yes, however the coverage is typically Employee Dishonesty and Forgery & Alteration coverage with low limits of $10,000.
Can My Employee Dishonesty Policy Include the Necessary ERISA Requirement for My Company’s 401K Plan?
A Crime policy can be expanded to meet the ERISA requirement of a "bond" in an amount equal to 10% of your plan asset value, eliminating the need for you to purchase a separate fidelity bond.