November 21, 2016 Articles

Employment Practices Liability Insurance Policies

Exploring the interplay between recent employment law developments and coverage issue

by Teresa Lewi [1]

The ever-shifting employment law landscape across the United States continues to present significant challenges and liability risks for companies. In light of significant employment law changes from 2014 to 2016, companies’ liability risks are projected to grow over the next few years—making employment practices liability insurance (EPLI) policies all the more consequential. As noted in a September 2014 report, lawsuits against employers related to their employment practices “have been on the rise as more employees are aware of their rights, and media coverage has publicized many high profile employment disputes." [2]

Companies that are faced with employment lawsuits can expect to incur substantial costs and may spend years defending such lawsuits. Defense costs regularly range from $200,000 to $300,000 per lawsuit, which often take between 18 to 24 months to resolve. [3] While employment lawsuits are often initiated by a current or former employee, federal, state, and city agencies will frequently file claims on behalf of an employee or group of employees as well. [4] EPLI polices, which are designed to provide coverage for allegations of wrongful employment-related acts, are still evolving products that have not been the subject of as much coverage litigation as numerous other types of policies. For policyholders—particularly companies employing workers in New York or California, which have the most employee-friendly laws [5]—matching the scope of their EPLI coverage to the types of litigation exposures they are likely to face will continue to take on greater importance. As discussed below, recent employment law trends indicate that EPLI coverage options will continue to evolve as the types of EPLI claims become more diverse.

Wage-and-Hour Claims

Over the past few years, wage-and-hour lawsuits have been the most active type of litigation in the employment law field, with a record number of wage-and-hour lawsuits filed in federal court in 2015.[6] The steady uptick in wage-and-hour lawsuits can be traced to recent changes in federal, state, and local employment laws that expand employers’ obligations. The myriad of wage-and-hour laws and regulations—coupled with more aggressive enforcement from government branches such as the U.S. Department of Labor—has left companies more vulnerable to costly class action lawsuits and government enforcement actions. Indeed, commentators predict that there will be a “record-breaking” number of lawsuits in 2016 alleging violations of the Fair Labor Standards Act (FLSA), a federal law that requires employers to pay a minimum wage and overtime to eligible employees who work over 40 hours in a week.[7] State and local governments have also passed numerous laws over the past two years that have increased minimum wage rates, prompting many employers to raise wages or face a significant litigation risk.[8]

Wage-and-hour lawsuits, which often allege violations of the FLSA or similar laws, may be explicitly excluded from coverage under EPLI policies. For example, some policies contain a wage-and-hour exclusion for “loss for any claim for violation of responsibilities, duties or obligations imposed on an insured under any wage and hour Law.”[9] Other policies may offer optional coverage for wage-and-hour lawsuits or claims alleging violations of the FLSA. For example, in Admiral Insurance Co. v. Kay Automotive Distributors Inc., the EPLI policy specifically limited its defense cost coverage to only $100,000, and excluded any indemnity obligation, for alleged violations “based upon, arising out of, directly or indirectly resulting from or in consequence of, or in any way involving any federal, state, local or foreign wage and hour laws, including, without limitation, the Fair Labor Standards Act. . . ..”[10] The Admiral Insurance Company court held that the provision also applied to sections of the California Labor Code that addressed employee pay and work hours because those sections constitute “state . . . wage and hour laws.”[11]

Given the general principle that exclusions are to be narrowly construed, FLSA or wage-and-hour exclusions should not apply to laws that are not actually addressed in the exclusion. For example, in PHP Insurance Service v. Greenwich Insurance Co., the EPLI policy issued by Greenwich Insurance Company excluded claims “based upon, arising out of, directly or indirectly resulting from, in consequence of, or in any way involving…the Fair Labor Standards Act (except the Equal Pay Act)…or similar provisions of any federal, state or local statutory law or common law. . . .”[12] The court ruled that  section 226 of the California Labor Code, which requires employers to furnish itemized wage statements to employees, was not “similar” to any provision in the FLSA; thus, the exclusion did not apply to claims alleging violation of section 226.[13] Accordingly, because at least some of the claims alleged in the underlying lawsuit were covered, the insurer had a duty to defend the insured, PHP, in the entire action.[14] As PHP demonstrates, insureds facing wage-and-hour claims may still be entitled to the cost of their defense under the broad “duty to defend” language found in many EPLI policies.

In addition, EPLI policies often expressly cover the types of allegations pled in wage-and-hour lawsuits under broad “Wrongful Employment Practice” definitions that include coverage for discrimination, retaliation, “employment-related misrepresentation,” “failure or refusal to create or enforce adequate workplace or employment policies and procedures, employ or promote, including wrongful failure to grant bonuses or perquisites, or grant tenure,” and “breach of Employment Agreement.”[15] Also, some EPLI policies that exclude coverage for wage-and-hour claims may contain a “carve-back” provision stating that the exclusion will not apply to retaliation claims or allegations of violations of the Equal Pay Act.[16]

Coverage may also be implicated in wage-and-hour lawsuits alleging that employers failed to create or enforce adequate employee pay policies, pressured employees into working more hours than provided for in an employment agreement, or misclassified the status of their employees as “exempt” from the FLSA’s overtime laws. In May 2016, the U.S. Department of Labor issued a final rule, effective December 1, 2016, that increased the minimum annual salary threshold for certain employees to be considered exempt from overtime pay requirements under the FLSA.[17] The change in law may prompt more lawsuits from employees alleging improper misclassification under the new rule. Such allegations of misclassification do not squarely fall within a wage-and-hour exclusion and may instead constitute “misrepresentations” covered by EPLI policies.

Directors’ and officers’ (D&O) liability policies might also offer coverage for wage-and-hour claims. For example, at the state level, California recently amended section 558.1 of its Labor Code to make individuals liable for wage-and-hour violations by the employer. The revision provides that any employer or “other person acting on behalf of an employer” may be held liable for violating or causing to be violated any wage-and-hour laws or regulations.[18] The term “other person acting on behalf of an employer” means “a natural person who is an owner, director, officer, or managing agent of the employer.”[19] Given that EPLI coverage is often packaged with D&O policies, employment practices liability claims that implicate individuals may be covered by D&O policies. While some D&O policies exclude coverage for employment claims made against the insured company, such exclusions do not necessarily apply to individual officers named in a lawsuit.

Generally, wage-and-hour lawsuits that allege other covered violations will likely fall within an EPLI insurer’s duty to defend.[20] Although the proliferation of wage-and-hour lawsuits has encouraged some insurers to sell endorsements covering wage-and-hour claims, many of the endorsements provide coverage for defense costs only (not indemnity costs) and may contain other restrictions. Thus, coverage for wage-and-hour claims will often turn on the nature of the allegations against the insured, the specific facts alleged, and the wording of the relevant policy language.

Discrimination and Retaliation Claims

EPLI policies cover certain losses incurred by employers in connection with claims of a “wrongful act” or “wrongful employment practice,” which typically encompass claims of discrimination, harassment, wrongful termination, retaliation, breach of employment agreement, and other types of unlawful conduct by employers.[21] The U.S. Equal Employment Opportunity Commission (EEOC) is charged with enforcing compliance with an array of federal antidiscrimination statutes, including the Civil Rights Act of 1964 and the Americans with Disabilities Act.[22] Individuals claiming that they have been subject to unlawful discrimination may file a charge with the EEOC, which then notifies the employer of the charge and investigates the allegations to decide whether to file a lawsuit on behalf of the claimant or to seek a settlement with the employer.[23]

One of the most significant EEOC trends is the continued push for systemic—rather than individual—investigations of workplace bias.[24] The EEOC has stated that “[t]he identification, investigation and litigation of systemic discrimination cases . . . are integral to the mission of the EEOC.”[25] Given the EEOC’s focus, increasing the scope of EPLI coverage for EEOC charges and claims alleging discrimination can be crucial to preventing companies from incurring overwhelming defense costs. Unless specifically provided otherwise, EEOC charges are typically included in the definition of “claim” under EPLI policies.[26]

EEOC-related claims may also directly implicate EPLI coverage if they involve retaliation by the employer. Of the 89,385 charges filed by the EEOC in 2015, claims alleging retaliation in violation of antidiscrimination laws accounted for 44.5 percent of those EEOC actions.[27] The inclusion of retaliation in a discrimination complaint may increase the risk of punitive damages being awarded given the intentional nature of retaliatory conduct. Accordingly, some EPLI policies expressly exclude intentional wrongdoing from coverage.[28] In Manganella v. Evanston Ins. Co., for example, the court held that the “Intentional Acts Exclusion” of the EPLI policy applied because the defendant’s allegedly harassing conduct was “willful” under the policy exclusion.[29] Therefore, if a fact finder or arbitrator were to conclude that an employer intentionally discriminated against or harassed a former employee, some EPLI policies might not cover the employer for the loss. In contrast, other EPLI policies broadly cover retaliation claims without excluding intentional wrongdoing.[30]

In response to the current employment law environment, some EPLI insurers are offering more coverage options for lawsuits brought by third parties (not just employees), which may provide coverage for both discrimination and harassment claims.[31] For example, some insurers offer optional third-party liability coverage for claims “brought by customers for discrimination and/or harassment (including costs of defense for Americans with Disabilities Act (ADA) and public accommodation claims).”[32] Other policies may limit coverage for a “Third Party Wrongful Act” to only claims alleging discrimination or sexual harassment.[33] Overall, companies should assess their risk of exposure to claims related to discrimination—particularly claims that may be brought by the EEOC or by third parties—and consider whether their EPLI coverage is sufficient.

Recent NLRB Rulings on Social Media Policies and Definition of Joint Employers

The scope of coverage under EPLI policies may also extend to claims made in connection with the National Labor Relations Act (NLRA), the federal law that safeguards union and non-union workers’ rights to act together to improve their pay or work conditions. Over the past few years, the National Labor Relations Board (NLRB), which regulates and implements the NLRA, has been making waves for its controversial decisions that expand employers’ liability to employees—with potentially deep implications for EPLI coverage.

With the rise of social media, many companies have implemented policies regulating social media use by employees. Many such policies restrict employees from using social media to discuss work-related issues or make disparaging statements about the company. Increasingly, the NLRB has been concluding that, in some instances, employees who use social media to raise work-related concerns are engaging in “concerted activities for the purpose of collective bargaining or other mutual aid or protection”—a legally protected right under section 7 of the NLRA.[34] For example, the NLRB decided in August 2016 that Chipotle’s social media policy violated the NLRA in part because the policy prohibited employees from making disparaging statements on social media, and “the [NLRB] has found rules prohibiting derogatory statements to be unlawful” under section 7.[35] The NLRB further concluded that Chipotle’s firing of the employee was unlawful because it was prompted by the employee’s social media posts criticizing Chipotle’s working conditions.[36]

Some EPLI policies do not cover claims alleging violation of the NLRA. However, those insurers may provide an explicit “carve-back” that restricts the application of an NLRA exclusion to claims for retaliatory treatment by employers.[37] Such carve-backs may simply state that “this [NLRA] exclusion will not apply to Claims for Retaliation.”[38] A retaliation carve-back to the EPLI policy’s NLRA exclusion would preserve coverage for a claim by an employee (such as the employee in the Chipotle case) that he or she was terminated in retaliation for engaging in social media activities protected by the NLRA.[39]

Another major decision by the NLRB, issued a year ago, adopted a new standard for deciding whether a company is a joint employer and thus subject to all of an employer’s legal obligations and liabilities under the NLRA. Since the 1980s, a company could be considered a “joint employer” with another entity only if the company exercised direct control over operations, hours, working conditions, and the like.[40] This standard was flipped on its head in August 2015, when the NLRB issued a controversial decision concerning Browning-Ferris Industries of California, Inc. (BFI), a California waste management company.[41] The NLRB found that BFI was a joint employer with Leadpoint, a company that supplied employees to BFI to perform work functions for BFI such as cleaning and sorting recycled products, over which BFI exercised “indirect” and direct control.[42] In other words, a company no longer needed to exercise “direct control” over another entity’s employment practices in order to be liable for employment law violations.

As a result of the NLRB decision, companies working with franchisors, professional employment organizations, staffing agencies, and independent contractors may bear additional employment liability risk.[43] Now a franchisor may be considered a joint employer of a franchisee if it merely has “indirect” or even “potential” control over employee activities (e.g., requiring them to wear uniforms or use certain equipment).[44] As a result, a franchisor could be drawn into an employment practices liability lawsuit against a franchisee. EPLI policies’ definition of “Insured” often do not address joint employer situations, so the NLRB decision may lead to coverage disputes over this issue.[45] In light of the substantial risk of exposure to employment lawsuits that name both the franchisor and franchisee, franchisors should consider requiring franchisees to carry EPLI coverage and naming the franchisor as an additional insured on the policy.[46] All policyholders would also be well advised to examine whether their EPLI limits are sufficient to address the increase in exposure.[47]


As new technology emerges and the political landscape shifts, employers may face additional exposures with respect to their employment practices. While EPLI policies are designed to respond to various types of employment-related lawsuits, they are not one-size-fits-all. In the absence of uniformity among EPLI policies, policyholders should assess the most common or likely employment-related claims they may face, and examine critical policy terms and the scope of available EPLI coverage to determine not only what coverage should be purchased but how to maximize the value of the coverage in the case of a loss.

Keywords: litigation, insurance, coverage, employment practices liability, wrongful act, wage and hour, discrimination, retaliation

Teresa Lewi is an associate at Covington & Burling LLP in Washington, D.C.



[1] Teresa Lewi, an associate at Covington & Burling LLP in Washington, D.C., advises and represents policyholders in complex coverage litigation. The views expressed in this article are those of the author only and do not necessarily represent the views of, and should not be attributed to, Covington & Burling LLP or its clients.

[2] Advisen Insurance Intelligence, Complete the Picture: A Spotlight on the United States Employment Practices Liability Insurance Market, Sept. 2014, at 4.

[3] Complete the Picture, supra note 2, at 23.

[4] Complete the Picture, supra note 2, at 23.

[5] Complete the Picture, supra note 2, at 30–31.

[6] Aaron Vehling, “FLSA Class Actions Tto Hit Record High Iin 2016,” Law360, Jan. 12, 2016 (“Wage-and-hour cases are the most active types of litigation in the employment law sphere, with 8,954 filings in federal courts in 2015, up from 8,066 the previous year. . . .”).

[7] Vehling, supra note 6.

[8] See, e.g., Wage & Hour Division, U.S. Dep’t of Labor, Minimum Wage Laws in the States - —August 1, 2016.

[9] See Employment Practices Liability Coverage, Travelers Specimen Policy, § III.A.13, at 8.

[10] Admiral Ins. Co. v. Kay Auto. Distribs, Inc., 82 F. Supp. 3d 1175, 1179-80 (C.D. Cal. 2015).

[11] Admiral Ins., 82 F. Supp. 3d at 1177.

[12] PHP Ins. Service, Inc. v. Greenwich Ins. Co., No. 15-cv-00435-BLF, 2015 U.S. Dist. LEXIS 106274, at *6–7 (N.D. Cal. Aug. 12, 2015) (appeal filed Jan. 20, 2016).

[13] PHP Ins. Serv., 2015 U.S. Dist. LEXIS 106274, at *21–22.

[14] PHP Ins. Serv., 2015 U.S. Dist. LEXIS 106274, at *24.

[15] See Employment Practices Liability Coverage, Travelers Specimen Policy, § II.Y, at 6.

[16] See Employment Practices Liability Coverage, Travelers Specimen Policy, § III.A.13, at 8.

[17] Wage & Hour Division, U.S. Dep’t of Labor, Final Rule: Overtime.

[18] Cal. Labor. Code § 558.1(a).

[19] Cal. Labor. Code § 558.1(b).

[20] See also Richard S. Betterley, “Employment Practices Liability Insurance Market Survey 2015: Joint Employer Exposures Concern Insurers,” The Betterley Report (Dec. 2015) at 10, available at

[21] E.g., Complete the Picture, supra note 2, at 5.

[22] U.S. Equal Employment Opportunity Comm’n, Overview.

[23] U.S. Equal Employment Opportunity Comm’n, What You Can Expect Aafter You File a Charge.

[24] U.S. Equal Employment Opportunity Comm’n, Fiscal Year 2017 Congressional Budget Justification; see also Aaron Vehling, “5 EEOC Enforcement Trends Tto Watch Iin 2016,” Law360, Jan. 5, 2016.

[25] U.S. Equal Employment Opportunity Comm’n, Advancing Opportunity: A Review of the Systemic Program of the U.S. Equal Employment Opportunity Commission (Jul. 7, 2016).

[26] E.g., ExecPro Employment Practices Liability Specimen Policy, Great American Insurance Group, § III.A (“Claim”). See also Cracker Barrel Old Country Store, Inc. v. Cincinnati Ins. Co., 499 F. App’x 559, 563 (6th Cir. 2012) (holding that, because the definition of “claim” can be reasonably interpreted to include a proceeding initiated by the EEOC in response to an EEOC charge filed by an employee, the court construes the policy in favor of the insured); contra McCormick & Schmick’s Seafood Rests., Inc. v. Nat’l Union Fire Ins. Co. of Pittsburgh, PA, 2010 U.S. Dist. LEXIS 146619, at *6 (D. Or. Apr. 30, 2010) (quoting EPL policy provision explicitly defining “claim” to include “an Equal Employment Opportunity Commission . . . proceeding or investigation commenced by the filing of a notice of charges, service of a complaint or similar document of which notice has been given to the Insured”).

[27] U.S. Equal Employment Opportunity Comm’n, Charge Statistics: FY 1997 Through FY 2015.

[28] Manganella v. Evanston Ins. Co., 746 F. Supp. 2d 338, 348 (D. Mass. 2010).

[29] Manganella, 746 F. Supp. 2d at 348.

[30] E.g., Employment Practices Liability Coverage, Travelers Specimen Policy, § II.Q, at 4.

[31] See also Richard S. Betterley, “Employment Practices Liability Insurance Market Survey 2015: Joint Employer Exposures Concern Insurers,” Betterley Rep., Dec. 2015, at 11.

[32] ExecSuite Employment Practices Liability, Monitor Liability Managers.

[33] Federal Ins. Co. v. Singing River Health Sys., 2015 U.S. Dist. LEXIS 179011, at *18 (S.D. Miss. Nov. 24, 2015) (third-party wrongful act coverage applies to discrimination and sexual harassment claims only); Pharmacy & Healthcare Commc’ns, L.L.C. v. National Cas. Co., 2016 N.J. Super. Unpub. LEXIS 1087, at *6 (N.J. Super. Ct. May 11, 2016) (“EPL Section of the policy did not afford coverage to plaintiffs because they were not alleged to have committed acts of harassment or discrimination in the third-party complaint”).

[34] 29 U.S.C. §§ 151–169.

[35] Chipotle Servs. LLC d/b/a Chipotle Mexican Grill, 364 NLRB No. 72 (Aug. 18, 2016).

[36] Chipotle Services, 364 NLRB No. 72 (Aug. 18, 2016).

[37] ExecPro Employment Practices Liability Specimen Policy, Great American Insurance Group, § IV.H; Employment Practices Liability Coverage, Travelers Specimen Policy, § III.A.7, at 7. See also Kevin LaCroix, “Employers and Social Media,” D&O Diary, Apr. 14, 2014.

[38] Employment Practices Liability Coverage, Travelers Specimen Policy, § III.A.7 at 7.

[39] See LaCroix, supra note 37.

[40] Press Release, National Labor Relations Board,"Board Issues Decision in Browning-Ferris Industries,” (Aug. 27, 2015).

[41] "Board Issues Decision in Browning-Ferris Industries", supra note 40.

[42]Board Issues Decision in Browning-Ferris Industries," supra note 40.

[43] Andrea Wells, “How Employer Joint Liability Is Changing,” Ins. J., Feb. 18, 2016.

[44] Wells, supra note 44.

[45] Employment Practices Liability Coverage, Travelers Specimen Policy, § II.

[46] Wells, supra note 44.

[47] Peter Taffae, “What Does Joint Employer Liability Mean to EPLI?,” Betterley Rep., Dec. 2015, at 18–19.

Copyright © 2016, American Bar Association. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or downloaded or stored in an electronic database or retrieval system without the express written consent of the American Bar Association. The views expressed in this article are those of the author(s) and do not necessarily reflect the positions or policies of the American Bar Association, the Section of Litigation, this committee, or the employer(s) of the author(s).