All of this news about hurricanes and the tragic images of people losing their homes (and everything in them), takes me back to advice my father gave me years ago, which was: You need insurance for things you can’t afford to replace.
The same is true for businesses. They need insurance for losses they can’t afford to sustain. Yet, employers often don’t spend enough time thinking about insurance, until of course they need it, and are disappointed with the scope of protections provided.
I often see this with clients with regard to EPLI (Employment Practices Liability Insurance). Some employers think they have it, but get sued by a former employee and find out they don’t have coverage. But even those who have EPLI are not strategic enough about the scope of coverage they need. Which brings me to my list of considerations:
- Deductibles: How much of a deductible can you afford? And what incentive does that provide in litigation? EPLI deductibles often range between $25,000 and $250,000. A $25,000 deductible means that the business can afford a lot of litigation (if it wants to make a point of fighting to deter other claims). A $150,000 or higher deductible may just cover larger losses, and motivate early settlements to save on the deductible. A $75,000 deductible can be a reasonable middle ground (to either encourage settlements or litigate). That said, I have had more than one mediator suggest that a client just pay the $75,000 deductible to settle because they will pay that much anyway if litigation proceeds.
- Choice of Counsel: Many EPLI policies require certain law firms be used. Others suggest that firms can be waived in. Whether an off-panel firm to can waive in will depend on the insurance carrier. Many times I have seen clients unable to get a desired firm approved.
- Attorney Rates: Just about all carriers limit the rates that attorneys can charge. But some also limit the rates that the client can pay. Years ago it was typical for an employer to pay its law firm one rate, and then get partial reimbursement from the carrier for the approved (lower rate). But now, many carriers prohibit that practice.
- Is Wage/Hour Covered?: Typically wage-and-hour coverage is excluded unless a separate rider is purchased. And that separate rider is very much like earthquake insurance in California with a relatively high cost, high deductible, and limited coverage. Many wage-and-hour riders have a $100,000 or higher deductible (that only covers defense costs and not damages). And often defense costs are capped at some amount after the deductible as well. For example, a policy may only cover $100,000 in defense costs after a $100,000 deductible; so the only real coverage is on the second $100,000 in attorneys’ fees.
- The time to think about these issues, and negotiate them (to the extent you can), is before you purchase or renew the policy, not after. And while it isn’t fun to think about insurance, remember what my father said, it is important for those losses you simply can’t afford.