13 August 2020

Covid-19: Employment practice liability and employment disputes insurance

The economic impact of Covid-19 is seeing some business owners restructuring their workforces to respond to the challenging circumstances. With this comes a heightened risk of personal grievance claims from employees which may trigger an employment practice liability (EPL) policy, also known as employment disputes (ED) insurance.

To avoid these claims, which may include allegations of wrongful or constructive termination, emotional distress, mental anguish, discrimination or harassment, effective management is crucial.

Crombie Lockwood recommends business owners seek legal advice from a specialist employment lawyer or adviser at the earliest opportunity when dealing with employee related issues. Employers can also access advice from Employment New Zealand.

However, should you be faced with an employee liability claim it is useful to understand what ED/ EPL insurance covers and the key considerations relating to it.

What does employment disputes / employment practice liability insurance cover?

• Compensation arising from claims for personal grievances, and legal costs associated with the investigation, defence and settlement of a claim.
• It does not cover wages, holiday pay or amounts that would otherwise be payable to an employee as provided for under an employment contract.

Key considerations

Legal advice

Some insurers will exclude cover for personal grievance claims where the insured (the employer) has not sought appropriate legal advice from an employment specialist prior to taking whatever action they have with their employees.

The cost of this legal advice is not covered by the insurance policy, however this expense is worthwhile to help avoid potential personal grievance claims and to ensure you have a valid claim.

Even with insurance, businesses will incur financial costs in time spent managing the claim and funding the policy excess. The emotional cost to both parties in ED/EPL claims is also high.

Notification to the insurer

ED/EPL insurance policies require the insured (the employer) to notify the insurer immediately if they become aware of a claim or circumstance which could result in a claim. It is critical to a successful claim to involve the insurer at the earliest opportunity.

In that regard, only legal fees incurred with the insurer’s prior written consent will be covered by the policy and no settlements should be entered into without the prior written consent of the insurer

At all times care needs to be taken not to admit any liability to a third party or take any action that could prejudice any rights to indemnity.

Claims Made Basis

ED/ EPL policies are written on a claims made basis. This means that the policy that responds to a claim is the policy in force at the time the claim is made, or at the time the Insured becomes aware of a circumstance that could give rise to a claim in the future. If a policy has expired, is not renewed or is cancelled then it will no longer be available.

We’re here to help

One of our core responsibilities as a broker is to ensure you have all the information you need to make informed decisions about the risks your business faces. With the effects of coronavirus being felt in a number of ways by our clients across the country, we wanted to share some proactive advice to help you protect your business during this difficult and unprecedented time.

We hope you find the information above helpful, if you have any questions or if you would like to speak to us regarding employment practice liability / employment disputes insurance please talk to your broker.

Client Advisory