Employment Practices Liability Insurance, or "EPLI", covers employment-related claims, including allegations of Wrongful Termination, Discrimination, Sexual Harassment and Retaliation deriving from the employer-employee relationship. The policy pays both defense costs and any judgment or settlement, after the insured pays the retention (deductible). When purchased (for an additional premium), Employment Practices Liability coverage is usually added by endorsement to the fund's E&O/D&O policy; although some funds opt to pay more for a separate policy in order to get a lower retention (deductible).
Every insurer has a somewhat different policy form. The better forms have a broad definition of "wrongful act" and include coverage for:
- Wrongful termination or constructive termination of the employment of, or demotion of or failure or refusal to hire or promote, any person;
- Violation of any federal, state or local law (whether statutory or common law) prohibiting discrimination against any employee of, or applicant for employment with the hedge fund;
- Workplace harassment (whether sexual or otherwise) adversely affecting any employee of, or applicant for employment with the hedge fund;
- Retaliatory treatment against an employee of the hedge fund on account of such employee's exercise or attempted exercise of his or her rights under law;
- Negligent evaluation, negligent supervision, wrongful discipline, or wrongful deprivation of career opportunity;
- Breach of an implied contract or agreement arising out of any personnel manual or policy statement;
- Third party discrimination or harassment.
The number of employment-related lawsuits has steadily increased. In 2008 alone, the U.S. Equal Employment Opportunity Commission ("EEOC") received over 95,000 charges. (click
here to see EEOC enforcement and litigation statistics) Add to that the hundreds of thousands of employment claims filed with state and local agencies and the numbers are staggering. Hedge funds have a higher than average frequency of claims because they tend to have young, mobile employee populations and large, non-standard pay packages. The cost of dealing with an EPLI claim can be enormous. Even routine claims can generate legal fees in excess of $250,000.
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We need the following information to quote an Employment Practices Liability policy for your hedge fund:
- Copy of your current Employment Practices Liability policy (if applicable)
- Employee Handbook (if available)
- EEO-1 Report (if available
- Financial Statement of the fund manager
- Copy of Employment Application (if available)
- Details of any claims
- Completed and signed Employment Practices Liability application
Hedge Fund Insurance, a division of Frenkel & Co., Inc., has access to every major market in the U.S., London, and Bermuda. As brokers, we represent the policyholder and not the insurance company. Among the largest brokers in the country as ranked by
Business Insurance magazine, we have the market clout necessary to get you the best possible price. Some of the markets we place Employment Practices Liability policies with include:
- ACE USA
- Allied World Assurance Company (AWAC)
- American International Group (AIG recently changed the name of its property casualty operations to AIU Holdings, Inc.)
- Arch Insurance Group
- AXIS
- Catlin
- Chubb / Executive Risk
- CNA
- Hartford
- Houston Casualty (HCC/PIA)
- Lloyds of London
- Travelers
- XL
- Zurich
The most cost effective way for a hedge fund to purchase Employment Practices Liability coverage is to pay a relatively small additional premium to include it as part of the E&O/D&O policy. Some hedge funds purchase a separate EPLI policy - either because they want a lower deductible or because they do not purchase an E&O/D&O policy. A separate EPLI policy for most hedge funds will cost between $5,000 and $25,000 depending on the number of employees, the limit, and the fund's claims history.
Hedge Funds typically have a higher than average freqency of Employment Practices Liability claims. Some claim scenarios include:
- National origin discrimination - $250,000
- An employee sued a company for national origin discrimination in violation of Title VII, which prohibits employment discrimination based on race, color, religion, sex and national origin. The employee alleged that he was wrongfully terminated when he complained to his supervisors that co-workers had made disparaging remarks relating to his ethnic background. The plaintiff was awarded $250,000 in damages.
- Third party sexual harassment - $100,000
- Two employees of the company made inappropriate comments about the physical appearance of a female freelance contractor working on the premises. The contractor filed a claim against the company for third party sexual harassment. The suit was settled for $100,000.
- Discrimination and retaliation - $317,500
- A plaintiff alleged that the insured discriminated against him on the basis of his age and disability. The plaintiff further alleged that he was terminated in retaliation for filing a Workers' Compensation claim and for complaining about discrimination. The defendant contended that the plaintiff was not able to perform the essential functions of the job and that he was discharged for legitimate non-discriminatory and non-retaliatory reasons. The insurer spent more than $175,000 defending the case and paid $142,000 in settlement costs.
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