Under most D&O polices the insured, not the insurance company, controls the defense of claims, although the insurance company may eventually pay for all or part of the defense. Risk managers may require that the insurer include a provision stating that it will advance defense costs once the deductible or retention is satisfied, similar to the language in the standard D&O policy.

• Engage attorneys with experience in employment law to help the business prevent or minimize claims.

Counsel experienced with a particular business or industry can more effectively assist in managing the risks. It is vital for counsel to understand the nature of each employee group within an organization, the history of past employee or union complaints, the attorneys who were involved, and whether any employees are covered by a collective bargaining agreement.

Managing the Claims Process

• The insured should immediately place all potentially liable insurers (CGL, workers' compensation, employers liability, auto, EPL, umbrella, excess, etc.) on notice and tender any demand letter, complaint, threat of suit, or possibility of a suit to the carriers. The organization's insurance broker can assist in determining potentially applicable insurers and in providing notice.
• Because EPL policies are claims-made policies, timely notice is a condition of coverage. Notice should be provided pursuant to the notice instructions in the insurance policy, even when there is some question whether the policy will cover the claim. When a claim is filed or the employer receives notice that a claim may be filed, the employer should send all evidence regarding the nature and scope of the incident with the request for defense of the claim to trigger the insurers' obligations to investigate.
• When an employee files a lawsuit, the insured should engage experienced, specialized counsel who understand the nuances of coverage triggers and how to manage discovery demands, press coverage, and public relations issues. Insureds will be interested in protecting their reputations (that they did not commit discriminate, create a hostile work environment, ignore reports of sexual harassment, etc.) and may wish to “defend on principle to the U.S. Supreme Court.” However, the insurer will calculate the cost of dealing with the case and will want to settle when it is economically reasonable to do so. An expert counsel will know how to deal with both plaintiffs and insurers. Depending on who controls the choice of defense counsel, an organization may have to pay the costs of the specialized counsel itself or seek reimbursement from the insurer.
• When dealing with an insurer, the insured should remember that many insurance company employees are authorized to say “no,” and fewer are authorized to say “yes.” Thus, it is important to deal with the insurer's representatives with the authority to say “yes” to demands and settlement offers. A representative with experience in handling employment claims can be a valuable resource for the insured with limited employment practices claims experience.
• The insurer should send out the reservation-of-rights letter as soon as possible. Some states require insurers to provide notice of reservations about coverage within specific time periods or waive all coverage defenses. An organization facing an employment practices claim should check with counsel about any timing requirements in the applicable jurisdiction. The purpose of a reservation-of-rights letter is generally not to decline coverage, but instead to make sure the insured is aware of potential coverage issues that may, at some future date, limit or preclude coverage.
• There should be full disclosure of any genuine conflict of interest between the insured and insurer. In case of a conflict of interest, the insured should retain independent counsel, which may be covered under the policy.

Post Claim Loss Reduction

Loss reduction involves post-claim activities planned before any claims are filed. Ideally, an employer will consider post-claim loss reduction as part of the overall process of purchasing employment practices insurance. Subrogation in insurance provides loss payment from third parties. Arbitration, mediation, and public relations efforts are event reduction strategies. Catastrophe or contingency plans are a coordinated approach to liability loss reduction.

Disclaimer: This article is designed to provide accurate and authoritative information in regard to the subject matter covered. It is offered with the understanding that the writer is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional should be sought.