EPL insurance for law firms: Don't overlook this essential coverage
From discrimination and harassment to retaliation and wrongful termination, the potential for substantial financial and reputational damage in the current employment-practices landscape is too significant to ignore.
Imagine a prominent and thriving law firm suddenly faces a lawsuit from a former employee alleging wrongful termination and sexual harassment. Despite the firm's conscientious adherence to legal standards, the financial and reputational fallout is significant.
This scenario is not a far-fetched fiction but a growing reality in today's legal environment. Law firms are increasingly susceptible to employment practice-related allegations, making employment practices liability (EPL) insurance an indispensable coverage that should not be overlooked.
Lawyers universally recognize the need for legal malpractice insurance, a staple in protecting against claims by clients. However, many firms overlook another critical coverage: EPL insurance. As the landscape of employment law evolves, the risk of allegations from current or former employees is higher than ever. From discrimination and harassment to retaliation and wrongful termination, the potential for substantial financial and reputational damage is too significant to ignore.
Unique EPL risks for law firms
EPL insurance can help protect businesses against claims of wrongful employment practices such as discrimination, retaliation, wrongful termination and harassment. These claims have surged in recent years, with no signs of abating. Law firms, in particular, are vulnerable due to their unique workplace dynamics and high visibility.
Law firms are notably susceptible to claims of gender and race discrimination, with increasing incidents of claims of disability discrimination as well. Cases often involve allegations of a hostile work environment, where sexually charged comments and behaviors are allegedly tolerated, leading to wrongful termination claims for those who speak out. Younger generations, more attuned to their rights, are less likely to tolerate such practices, further elevating the risk.
Failure to make partner or disputes over partnership agreements pose additional risks. Claims of gender discrimination in promotion practices are common, with allegations that men are disproportionately favored. These scenarios highlight the need for EPL policies that offer coverage for such disputes, providing a safety net for law firms.
Employment practice claims often result in substantial damages driven by lost earnings and opportunities. For high-wage earners like attorneys, the financial stakes are significantly higher, translating to greater exposure for law firms. Moreover, legal professionals' awareness of employment laws and litigation processes can lead to well-informed and strategically sound claims, escalating potential damages. Finally, the fee shifting component of many employment practices laws significantly increases the overall financial value of these claims to a firm and the plaintiff firms who practice in this area.
EPL vs. legal malpractice insurance
Despite the heightened risks, many firms mistakenly believe that legal malpractice insurance suffices. In reality, legal malpractice and EPL insurance cover distinct areas, with no overlap. Legal malpractice insurance protects against claims from clients alleging errors in legal services, explicitly excluding employment practice claims. Conversely, EPL policies exclude claims related to professional services, highlighting the necessity of both coverages.
Even law firms that meticulously follow employment laws can be blindsided by employee lawsuits. Defense costs alone can reach hundreds of thousands of dollars, even for meritless claims. EPL policies may cover these defense costs, along with settlements or verdicts, providing crucial financial protection. For the smaller firms, this defense protection provides them with the financial means to vigorously respond to the allegations, thereby protecting their reputation in the market and legal community.
Additionally, EPL policies can provide the insured with access to an insurance carrier's panel counsel, a list that likely is carefully curated with specialists in employment law and with preferred hourly billing rates with discounts off the firms regular billing rates. Finally, policy endorsements are available to cover defense costs beyond the policy limit, offering further financial security.
Bridging the knowledge gap
Brokers and agents play a vital role in educating law firms about the importance of EPL insurance. Communicating the distinct and complementary nature of EPL and legal malpractice insurance is essential. Law firms must understand that while legal malpractice insurance is indispensable, it does not shield them from employment-related claims.
In today's legal and social climate, the risk of employment claims is too high for law firms to ignore EPL insurance. With the rising tide of EPL claims and the substantial financial and reputational risks involved, securing comprehensive EPL coverage is not just prudent — it's necessary. Law firms must consult with knowledgeable brokers to assess their risks and obtain the appropriate EPL insurance to safeguard their future.
Cynthia Arrotti Carter is assistant vice president of claims at Berkley Select (a Berkley Company). This article is published with permission from the author and may not be reproduced.
Disclaimer: Berkley Select is a member company of W. R. Berkley Corporation, a Fortune 500 Company. The views expressed here are those of the author and do not necessarily represent the views of Berkley Select or W. R. Berkley Corporation.
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