ISO Coverage Form

Summary: Employment-related practices liability is an exposure that is insured by many companies, and the coverage is most often written on policies that reflect the individual insurer's assessment of the exposures involved and the insurer's underwriting philosophy. The Insurance Services Office (ISO) offers employment-related practices liability (ERPL) coverage through the use of form EP 00 01 11 09, in which the insurer agrees to pay those sums that the insured becomes legally obligated to pay as damages resulting from an injury (a defined term that encompasses employment-related actions) to which the insurance applies. This article analyzes the ISO coverage form, with its insuring agreement, exclusions, conditions, and definitions.

Topics covered: Insuring agreement Exclusions Supplementary payments Who is an insured Limit of insurance Deductible Conditions Extended reporting period Definitions EP 00 02

Insuring Agreement

1.We will pay those sums the insured becomes legally obligated to pay as damages resulting from a “wrongful act” to which this insurance applies. We will have the right and duty to defend the insured against any “suit” seeking those damages. However, we will have no duty to defend the insured against any “suit” seeking damages because of a “wrongful act” to which this insurance does not apply. We may, at our discretion, investigate any incident that may result from a “wrongful act”. We may, with your written consent, settle any “claim” that may result. But:

a.The amount we will pay for damages and “defense expenses” is limited as described in Section III—Limit Of Insurance and in Section IV—Deductible;

b.The coverage and duty to defend provided by this policy will end when we have used up the applicable limit of insurance for “defense expenses” or the payment of judgments or settlements.

     No other obligation or liability to pay sums, such as civil or criminal fines, imposed on you or any other insured, or to perform acts or services is covered unless explicitly provided for under Supplementary Payments.

Analysis

The first item that merits attention here is the fact that the insurer agrees to pay for damages resulting from a “wrongful act”, as opposed to damages because of bodily injury (BI) or property damage (PD). EP 00 01 is meant to apply to employment-related practices which usually don't involve BI or PD. The term “wrongful act” is defined on the coverage form and is discussed later in this article.

The insurer offers the standard duty to defend agreement, but declares that it has no duty to defend if the insurance does not apply. This acts as protection for the insurer to counter arguments that “if it is not mentioned in the policy that the insurer can decline to defend the insured in some cases, then it must defend in all cases”.

The insurer agrees not to settle a claim without the named insured's consent. This is usually an agreement that can be found on professional liability policies, but due to the nature of the claims involved in employment-related practices and the effect such claims and settlements of those claims could have on the insured's business, a consent to settle clause is justifiable. After all, if the named insured is sued often for employment-related practices and the suits are settled without giving the insured the benefit of presenting its side of the story, its image is bound to suffer. This could lead to more employment-related lawsuits against a “patsy” named insured and to loss of business as the public comes to know the insured as “anti-employee”.

The most the insurer agrees to pay for damages or defense expenses is described on the declarations page. The important point here is that defense expenses (a defined term discussed later in this article) are included in the limit of insurance. If the insured has a limit of insurance of $300,000 on EP 00 01, that means the insured has a total of $300,000 to cover both the damages won by the claimant and the attorney fees involved in a defense; defense fees are not extra amounts that are covered as supplementary and separate payments as under a general liability coverage form. And, the insured should note, the duty to defend and the coverage end when the applicable limit of insurance is used up. For example, if the defense expenses hit the $300,000 mark chosen as the limit of insurance by the insured, the duty to defend ends and the coverage provided by EP 00 01 ends. This acts as an incentive for the insured to settle lest he or she be left to pay damages and attorney fees out of his or her own pockets.