Employment Liability Insurance: Read the Fine Print

Insurance fine print | BCBusiness
When it comes to buying employment liability insurance, protect yourself by reading the fine print.

The Legalist warns us of the dangers of not knowing the coverage details of your Employment Practices Liability insurance.

Employment Practices Liability (EPL) insurance has been around since the late 1990s. While policies differ, generally EPL policies may, at least on their face, provide indemnity for and/or defence against wrongful dismissal, harassment and discrimination claims, whether litigated before a court or administrative tribunal such as the Human Rights or Employment Standards.
 
The policies may also cover employment-related libel and slander, and sexual harassment and discrimination of non-employees. Some policies even offer punitive damage coverage.
 
But as Dr. Max Neiman found out a few years ago, what he thought he was insured for and what was actually insured were very different. Dr. Neiman was both the defendant in a wrongful dismissal action commenced by a former employee and the respondent in two Ontario Human Rights Commission proceedings commenced by former employees.
 
Dr. Neiman had EPL insurance as an extension of his comprehensive general liability insurance, but his insurance company refused to pay for the damages or defence of the actions/complaints. So, he had to sue his insurer, CGU Insurance Company.
 
Dr. Neiman’s EPL insurance promised to pay amounts Dr. Neiman was legally obligated to pay due to “Wrongful dismissal, excluding: (1) liability assumed by the Insured under any contract or agreement or (2) severance pay or allowances required to be paid by statute, or required under the terms of an employment contract or collective agreement.”
The policy also said the insurance company had the right and duty to defend any “action” seeking those compensatory damages.
The court held the wrongful dismissal claim was not covered under the policy because wrongful dismissal is, at its essence, a claim in breach of contract – which was excluded under the policy.
 
Coverage was also denied for the human rights complaints. While the human rights complaint was covered under the policy, because the Human Rights Tribunal could only award “compensation” as opposed to “damages,” the language of the policy did not provide for indemnity for the same. Nor did the policy provide a duty to defend Dr. Neiman in the human rights proceedings.
 
The moral of Dr. Neiman’s story: While EPL insurance may be useful in some circumstances, it certainly has limits, depending on a policy’s wording.  So, before you purchase insurance, make sure your broker can promise (in writing) what is and is not covered. If they cannot, consult a lawyer familiar with both employment and insurance law.