Do you have the right insurance policy to cover professional risks? – Assurance


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In November 2015, the Productivity Commission reported that the average wrongful termination claim costs employers $13,500. General protection, discrimination and bullying claims, and occupational health and safety lawsuits also represent a significant cost to employers in terms of legal defense costs and downtime.

Many employers take out insurance to cover professional risks, without fully understanding the different types of policies on the market and the risks they cover. Some employers are not fully aware of their obligations under their policy when a claim is made and it is important that they understand how to maximize their coverage.

Professional risk insurance contracts

Employment Practices Accountability (EPL) The insurance covers an employer, including its directors, officers, managers and employees, for claims made by employees, contractors and applicants for employment. Types of claims covered include wrongful termination, blanket protections, failure to promote, bullying, harassment, discrimination, and retaliation. The policy generally covers legal defense costs, settlement payments and other payments that the employer may be ordered to pay.

Legal responsibility the insurance covers an employer and its employees for defense costs, fines and penalties imposed as a result of violations of federal and state law. Occupational health and safety, competition and consumer law are two examples.

Management Responsibility the insurance covers an employer and its employees for faults related to the management of the company. It generally includes civil liability and legal liability as well as fidelity, director and officer liability, cyber risk liability and corporate liability for activities such as audits conducted by the ATO.

Directors and Officers (D&O) the insurance covers directors and officers of an employer (and in some cases senior management) to protect them from personal liability for claims arising out of the performance of their responsibilities and duties. If the employer incurs legal defense costs on behalf of a covered person, they may seek reimbursement for those costs under the policy. Most D&O policies offer EPL as an extension of cover for the payment of an additional premium.

Know your notification obligations

An employer must notify his insurer of a claim against him, including being the subject of an investigation or proceedings, or of any fact or circumstance which may reasonably be expected to give rise to a complaint. The time within which notification must be given varies by policy. Some require immediate notification while others require it as soon as reasonably possible.

This requirement allows the insurer to investigate the claim or potential claim at an early stage. Evidence that might otherwise become unavailable over time (for example, security footage that is only retained for a short time) can be identified and retained. Witnesses can be interviewed while the events are still fresh in their minds. Early notification can also allow a claim or potential claim to be resolved before a loss or new loss is incurred, thus reducing the cost of the claim.

Complaints may not be notified for various reasons. An employer may not know they have an EPL policy if, for example, it was offered as an extension of another insurance policy. Some employers do not understand what types of claims and job losses are covered by their EPL policy.

An employer may also make a conscious decision not to immediately notify their insurer of a claim or potential claim because they believe they can resolve the claim and avoid paying any excess under the policy.

Whatever the reason for late notification, the consequences for the employer can be serious. If the insurer has been harmed by the late notification, it can reduce its payout under the policy or even decline coverage altogether, leaving the employer liable for the full amount of the claim and its own defense costs.

Know what extras are available under the policy

Almost all policies offer extensions of coverage, such as the cost of engaging public relations or crisis management services in connection with a claim. This assistance can prove invaluable to employers by quickly minimizing potential damage to the reputation of the company and its senior executives.

If a claim is made against an officer or employee covered by the policy, but deceased or unable to manage their own affairs for reasons such as ill health or bankruptcy, policy coverage may be extended to that estate. or the person’s legal representative.

An extension may also apply, extending the coverage of the contract to any subsidiary acquired or created during the insurance period as well as to any subsidiary that ceased to be so during the insurance period.

What happens after notification of a claim?

Once a claim is notified and accepted by the insurer, the insurer will generally assume responsibility for defending the claim. This means that the insurer will make strategic decisions about how the defense is handled, including whether to settle or defend. This is a standard term in most policies and indicates that the insurer bears the cost of defending the claim and paying for any legal settlement or proceeding.

Under some liability insurance policies, the employer remains responsible for defending against the claim, but the insurer agrees to advance the costs of defense before the claim is resolved.

Insurers have appointed panels made up of law firms experienced in defending workplace claims. The insurer will decide which company to name for a claim, but will generally agree to name the employer’s preferred company from the insurer’s panel. Insurers will generally refuse to appoint a non-committee law firm even if that firm is responsible for the day-to-day legal affairs of the employer. It is important to know that if an employer incurs legal defense costs before notifying their insurer of a claim, they may not be able to recover these costs under their policy.

Once a claim is notified and a designated law firm is appointed, the employer should remain actively involved by promptly responding to requests for information and documents and maintaining an open dialogue with the broker, l insurer and the appointed law firm. This will help settle the claim with minimal disruption to the employer’s business.

Next steps

To maximize occupational risk insurance coverage, employers should:

  • get the right risk coverage for their business and industry

  • know what is covered by their policy

  • have strong internal processes so that complaints do not go unnoticed

  • avoid incurring legal defense costs prior to notification

  • find out which law firms the insurer uses and request a firm if the employer has a preference, and

  • remain actively involved in the strategic management of the claim.

The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.


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