Employment practices liability insurance policies, commonly referred to as EPLI, provide protection against large jury verdicts rendered in cases involving employment discrimination, harassment and other employment law violations. These policies also typically call for insurers to pay the costs of defense counsel in excess of the employer’s retention.
While these policies may indeed provide significant protection, they have also proved problematic in one respect to many employers, because many EPLI policies specify that defense counsel will be selected by the insurer and not the employer. Most often, such counsel are selected by the insurer from a short list of law firms previously chosen by the insurer to serve as “panel counsel” in the geographical area where the lawsuit has been brought. In most instances, insurers have negotiated lower hourly rates with their panel counsel in exchange for promises of “volume” work. Typically, the employer has never had any prior dealing with the counsel designated by the insurer.
In other words, the employer will not be permitted to utilize its usual employment counsel who may have a long and trusted relationship with the employer. The employer’s regular counsel may well be familiar not only with the employer’s business, but also with the employer’s people, its practices and policies. Indeed, the employer’s regular counsel may have been extensively involved in assisting the employer in the development of the employment action, such as a termination or a reduction in force, that has given rise to the lawsuit. The employer’s regular counsel may also have handled other employment litigation for the employer prior to the purchase of EPLI.
Nevertheless, the insurer invariably will insist that the employer use its panel counsel despite such objections from the employer. Indeed, some insurers will refuse to permit employers to use their regular counsel as defense counsel in a covered case even if the employer offers to pay any difference in the cost of its regular counsel and the insurer’s panel counsel. Thus, in what may be a very significant lawsuit, the employer will be left with an attorney who, in all likelihood, lacks all the preexisting knowledge and trust enjoyed by the employer’s usual counsel.
These issues can be avoided if the employer chooses to exercise its leverage at the time it is negotiating to purchase an EPLI policy for the first time or is negotiating the potential renewal of its existing policy. During such negotiations, an employer can usually successfully insist that its insurance carrier agree that the employer will have the right to retain its regular employment counsel in the event a covered claim is filed against it. If an employer’s existing insurer will not agree to this, another insurer often will do so in order to secure the employer’s business. Alternatively, an employer may choose to purchase a “duty to reimburse” policy which usually permits the employer to choose its counsel, rather than a “duty to defend” policy which generally does not.