Overlooked Fundamentals of Buying Stand-Alone EPLI Policies

There are two fundamenta l issues that must be considered when purchas ing any standalone EPLI product. Preferably, these issues will be evaluated before the insurance broker goes to market and begins negotiating more specif ic cove rage terms. First, the policyholder should decide whether it wants a "working layer" program (i.e., a policy wi th re la t ive ly low l i m i t s c o m b i n e d w i t h low deductibles/self-insured retentions) or a "catastrophic" program (i.e., a policy with relat ive ly h igh l imi ts combined with high deductibles/self-insured retentions). Second, the policyholder mus t de te rmine whether it seeks a "duty to defend" policy (i.e., a policy under which the insurer is oblig a t e d to d e f e n d any c la im alleging something that is cove red u n d e r the policy) or a policy in which the insurer has "no-duty to defend" (also called a "duty to pay" program) and is obligated to pay defense costs only when the insured orchestrates the defense of a claim. The EPLI market today provides for any combinat ion of the foregoing. The most common combinations are ei ther a working layer/duty to defend program or a catastrophic/duty to pay program. However, one just as easily can buy a working layer/duty to pay program or a catastrophic/duty to defend program. Fai lure to address these fundamenta l issues can cause a range of problems for the policyholder, from the mere nu i sance of inc reas ing EPL claim handl ing costs to someth ing much more ominous creation of a claims handl ing "reputation" that is out of alignmen t with the policyholder 's