The cover provided by the EPL and D&O overlap. Like Professional Indemnity policies, they are both types of liability insurance. The EPL policy protects the company and individuals for employment-related allegations, whereas the D&O policy protects its directors and officers in the event they face allegations of a wrongful act committed in their managerial capacity. However, D&O policies also provide coverage for employment-related allegations against individuals – hence the overlap.
An EPL policy provides coverage for employment-related claims, such as:
EPL policies are often extended to include coverage for reasonable costs incurred by either the company, or an individual, in responding to regulatory investigations. Additionally, some EPL policies offer some additional extensions of cover not generally found in D&O policies, offering other advantages beyond just the entity EPL coverage. The breadth of coverage can vary geographically and will also depend on the state of the FI insurance market.
With regards to the D&O, as mentioned in our first article of ‘De-mystifying Insurance – D&O and PI policies for FIs’, the core coverage is for claims against board directors or senior managers (acting in their managerial capacity) which are either not indemnified by the company (Side A claims), or are indemnified by the company (Side B claims). D&O policies also provide coverage for claims against individuals arising from an ‘Employment Wrongful Act’ or sometimes referred to as a ‘Employment Practices Violation’ in some policies. This is similar to the coverage offered by the EPL policy as mentioned above.
Generally, for the individuals, these claims would be in relation to the employment or prospective employment of any past, present, or future employee of the company. D&O policies would also provide coverage in relation to costs responding to a regulatory investigation, however under the D&O, this would be for individuals only.
Often, there are allegations made against the company and potentially an individual. This is where having an EPL policy may be useful as it provides coverage for both the company and the individual. Therefore, there may be no need to engage the D&O policy and the limit remains available for allegations against the board and senior managers. However, should an FI choose not to purchase an EPL policy, they could look to trigger their D&O policy for allegations against the individual – this would mean that the claim against the company would not be covered by insurance. We would recommend that insureds instruct their legal counsel to allocate their costs accordingly. This will be useful when it comes to submitting a claim to the insurance market to streamline the process of determining covered and uncovered matters.
Both D&O and EPL policies contain an ‘Other Insurance’ clause. This can determine in which order policies may respond. Policy response is usually determined by the ‘more specific, valid and collectible’ policy being in force at the time of the claim. If the policyholder purchases an EPL policy and a D&O policy, for employment-related claims, insurers may look to assert that the EPL policy is the ‘more specific, valid and collectible’ insurance policy and so will respond to such claim (subject to terms and conditions).
Insureds should discuss with their broker which policies and coverage suit their needs. Both D&O and EPL policies are “claims made” policies and should both policies be purchased, the ‘Other Insurance’ clause will determine which policy would likely be triggered in the event of an employment-related claim. Insureds should review this clause in conjunction with their broker to ensure it operates how they expect. As always, beware that in most policies, the definition of claim, which is usually the trigger for making a notification, is often broader than the receipt of legal proceedings. It is important to ensure you notify the appropriate policy in a timely manner (and certainly before the policy expires) to avoid any issues around late notification.
