What to Watch for When Navigating EPLI Landmines

Understanding Prior Acts, Warranty Statements, Pending and Prior Litigation Dates and More

Assuming that all employment practices liability insurance policies (EPLI) are created equal could be one of the biggest mistakes agents and brokers make when placing the coverage. In the world of EPLI, there are no ISO forms and no defined standards. This article identifies several important EPLI coverage areas.

Prior Acts Coverage

Coverage for prior acts — or wrongful acts that occurred prior to the inception date of the policy — is one of the most important areas to consider in an EPLI policy. Because virtually all underwriters issue EPLI policies on a claims-made basis, the claim must be made during the policy period. However, whether or not the claim is covered could be affected by when the alleged wrongful act occurred.

If an insured purchases coverage for the first time, there are two possibilities — carriers will either offer full prior acts or put a retroactive date on the policy matching the policy inception date. If the carrier offers full prior acts, should a claim be filed during the policy period for a covered wrongful act that occurred anytime back to the date of incorporation of the company, and the claim is not denied for any other reason, there will be coverage. However, if the carrier puts a retroactive date of inception on the policy, and if the alleged wrongful act occurred prior to the retroactive date, there will be no coverage. In today’s EPLI marketplace, the vast majority of carriers offer full prior acts coverage.

Warranty Statement

The warranty statement on an EPLI application asks whether the prospective insured is aware of any incidents that could potentially give rise to a claim. Those purchasing coverage for the first time should answer this question. However, insureds with current coverage should not answer the warranty question. An insured with coverage in place should be reporting incidents and/or claims following instructions in the policy and not on the application. Also, the insured may need additional time to gather facts the insurer may require to recognize the incident or claim as such. Prematurely notifying the carrier regarding an incident or claim by answering the warranty question may have a negative effect on the coverage and on continuity of coverage.

Continuity Date

Often an EPLI policy will have a continuity date on the declarations page, although not always. This date refers to the last time the insured answered a warranty statement on an application. The continuity date can also be referred to as the prior knowledge date. When an insured files a claim, the carrier will attempt to determine whether there was prior knowledge of the incident. If the carrier determines that the insured knew about the incident prior to the continuity date, the claim would likely be denied. In addition, if the insured signed the last warranty statement with the current carrier, the carrier may attempt to rescind the policy citing a material misstatement in the application. It’s very important that at each renewal, the insured not answer the warranty statement. Equally important, if the insured changes carriers, then the agent should ensure the new carrier matches the expiring continuity date. This is often referred to as maintaining continuity.

Pending, Prior Litigation Date

One frequently misunderstood area in EPLI includes pending and prior litigation dates. The pending and prior litigation date refers to just that — litigation or claims pending at the inception of the policy or that occurred prior to the inception date of the policy. When an insured purchases coverage for the first time, the policy should offer coverage for unknown acts that occurred any time back to the incorporation of the company, but there will not be coverage available for ongoing or pending litigation or claims that might arise out of past or prior litigation.

When an insured first purchases coverage, the carrier will have the pending and prior litigation date match the inception date of the policy. At each renewal, if the insured stays with the same carrier, the date will remain the same as it was on the first policy. However, if the insured moves coverage, most carriers will want a current pending and prior litigation date. The new carrier will want the pending and prior litigation date match the inception date of the first policy with that carrier.

Most carriers will not pick up coverage for claims arising out of litigation that occurred in the past.

However, some carriers will consider backdating the pending and prior litigation date but will typically require a schedule of litigation and will exclude everything on that schedule. It should also be noted that even in the absence of a pending and prior litigation date provision, it is likely that the claim would be denied anyway as most policies have a specific exclusion for previously reported claims.

Incident Reporting

Most policy forms available today are typically referred to as incident-sensitive forms. Insureds who become aware of an incident or a set of circumstances they believe could give rise to a claim can and should report this to their EPLI carrier. The advantage — if the insured reports an incident that eventually becomes a claim, the insurer will treat the claim as if it was reported when the incident was reported. This means if the incident was reported during one policy period and becomes a claim during the next policy period, the claim will be covered by the limits of the previous policy and leave the current limits unimpaired. This would be the case whether the insured stayed with their previous carrier or moved carriers.

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