193.6-3

BP 0623–EMPLOYMENT PRACTICES LIABILITY–CLAIMS-MADE BASIS

(May 2025)

INTRODUCTION

The American Association of Insurance Services (AAIS) Businessowners Policy excludes coverage for bodily injury and personal or advertising injury resulting from employment-related practices. This endorsement provides coverage for some of these excluded practices and operates on a claims-made basis. Although this is an endorsement, it functions similarly to a coverage form.

Changes are made to the following sections and apply to only the coverage that this endorsement provides:

Definitions
Commercial Liability Coverages
Supplemental Payments
What Must Be Done in Case of Loss
How Much We Pay
Additional Conditions

The following sections are added for only this endorsement:

Extended Reporting Period
Additional Insureds

SCHEDULE

The endorsement schedule has spaces for the following entries:

Coverage F–Employment Practices Liability

® A Limit for Each Claim and an Aggregate Limit must be entered.

Coverage F–Employment Practices Liability Deductible

® An Each Claim Deductible must be entered.

Retroactive Date

® Any date can be entered. If there is to be no retroactive date, the word NONE should be entered to eliminate confusion.

Additional Insureds

These are optional. They apply only when selected on this endorsement’s schedule.

Newly Acquired Organizations
All Employees
Supervisory Employees
Controlling Interest

® The name of the person or organization with controlling interest must be entered in the space provided.

Designated Person or Organization

® The name of the designated person or organization must be entered in the space provided.

DEFINITIONS

New Definitions

The following definitions are added.

NOTE: The Editors added titles to enhance clarity.

a. Claim

A claim must be in writing and presented by the named insured’s employee or an applicant the named insured rejected. It must allege that the named insured is liable for a wrongful employment practice action and can include a suit or an action by any civil authority. It does not include any type of labor action.

b. Independent contractor

This is a person hired to provide a service or perform a job. The person must not be subject to the hiring party’s control or direction.

c. Retaliation

This is action taken against an employee for exercising their legal rights or attempting to do so.

d. Supervisory employee

Supervisory employees must have both responsibility and authority at a management level.

Example: Jessica’s title is Line Supervisor. She is responsible for the line operating effectively, but she must report to her supervisor before taking any employee-related action. Jessica is NOT a supervisory employee.

e. Wrongful employment practice

This is any one or more of the following offenses:

Work-related harassment

This is harassment creating hostility in the work environment. It also includes sexual-related offenses.

Example: Hillary is the manager of Great Place’s Information Technology (IT) Department. Nine employees report directly to her. She hires a new administrative assistant, Justin, and tells the other employees to “leave him alone because he belongs to me.” She then repeatedly sets meetings to take place at evening meal times and insists that he attend them. In this case, both Justin and all other employees are subjected to work-related harassment because of the environment Hillary creates.

Any of the following:

o Misrepresentation of employment conditions

o Negligent evaluation

o Wrongful demotion, reassignment, or discipline

o Wrongful failure to hire, promote, or grant tenure

o Wrongful termination

Discrimination that is both work-related and illegal. Examples are when decisions are made based on race, color, age, medical condition, gender, physical impairment, pregnancy, and other civilly protected classes.
Invasion of privacy
Retaliation
Defamation related to employment
Emotional distress when it is intentionally inflicted.

Changed Definitions

The following definitions delete and replace the same definitions in the Businessowners Policy under the Commercial Liability Coverages—Additional Definitions, but only with respect to the coverage that this endorsement provides:

2. You and Your

These terms mean the named insured on the policy and any subsidiary corporate entity. However, a condition applies for the subsidiary corporate entity to be either of these terms. The named insured must own 50% or more of the entity’s outstanding securities, actively manage it, or have a controlling interest in it.

3. Coverage territory

This definition is broadened and still includes the basic territory. The broadened territory is worldwide when either of the following determines the insured's obligation to pay damages:

· A settlement the insurance company agrees to

· A suit on the merits brought in the basic territory

4. Damages

This definition is broadened. It is monetary compensation given to an employee who claims injury.

The following are not considered damages:

Punitive or exemplary damages, fines, or other damages amounts awarded as a penalty
Compensatory amounts that the insured is legally obligated to pay due to the termination of an employee include severance pay and back pay, which are two common examples. Other examples can include stock, monetary compensation, and insurance coverage. Some employees may have contractual agreements with their employers, and any breach of these contracts falls into this category. Breaches of express written or verbal employment agreements can be particularly complex, and damages resulting from these breaches are typically excluded.
Relief of non-monetary compensation, such as a court ordered action of a defendant (employee) to stop or take an action. It encompasses all legal costs incurred by employees seeking relief from their employer.
Any benefits from an insurance policy, including health or disability insurance, that accumulate over time.
Any tax liability incurred by the individual who claims a wrongful employment-related practice.
Other insurance coverage deductibles or self-insured amounts that are the responsibility of any insured.

5. Employee

This definition is broadened to include only persons whose labor or service the named insured retained. Supervisory employees, as well as part-time, seasonal, temporary, and leased workers, are all considered employees.

Independent contractors and volunteer workers are not employees.

6. Insured

This more precise definition deletes and replaces the same definition in the Businessowners Policy. It is identical to the definition of insured in the policy except in four areas:

Item a. is amended as follows:

If the insured is a limited liability company, the members are insureds only while they act within the scope of their duties (instead of with respect to the conduct of the named insured’s business).
If the insured is an organization, the executive officers and directors are insureds while they act within the scope of their duties. However, the duties are not limited to only those duties as executive officers and directors.

Item b. is eliminated with respect to who qualifies as a named insured. This means employees, volunteers, and miscellaneous entities are not insureds.

The final paragraph within this section (b.) is slightly changed by adding the term “entity” between the terms “person” and “organization.”

7. Suit

This definition changes by substituting “bodily injury, property damage, or personal and advertising injury” for the words “wrongful employment practice.”

COMMERCIAL LIABILITY COVERAGES

All Commercial Liability Coverages in the Businessowners Policy are replaced by the following in this endorsement. This means that bodily injury, property damage and personal and advertising injury coverage does not apply.

Coverage F–Employment Practices Liability

The coverage described in paragraphs 1. a. and 1. b. below are subject to the Coverage F–Employment Practices Liability Each Claim and Aggregate Limits on the endorsement schedule.

1. Insuring Agreement

a. Coverage

The insurance company pays all amounts that an insured must legally pay as damages due to injury that results from a wrongful employment practice subject to the following:

The wrongful employment practice took place in the coverage territory.
The wrongful employment practice began on or after the Retroactive Date (if any) on the endorsement schedule and before the expiration date for this coverage.
A claim is first made against an insured during the policy period, and written notice is received by one of the following:

o Insured

o Insured's risk management department employee.

o The insured's legal counsel.

o The insurance company directly.

A claim received during the policy period and reported to the insurance company by the insured within 30 days after the end of that policy period will be considered as reported within the policy period, unless the following applies:

o Another policy purchased by the insured is in effect at the end of this policy period and applies to this coverage.

o Another policy purchased by the insured and effective at the end of this policy period, and would have been covered by that policy, but the limits were exhausted.

NOTE: If this policy is active when a loss occurs and the loss is reported to the insurance company within 30 days after the policy period ends, and another policy is also in effect that covers the loss, this policy will be considered as excess coverage.

· If a potential claim is reported in writing to the insurance company, they will consider any claim subsequently presented to have been made on the date the insured first notified the insurance company.

· Regardless of the number of claims submitted, all claims of injury to one person is treated as one claim.

Example: Justin can no longer deal with Hillary’s attention. After only four weeks, he finds another job and gives Great Place notice. He then files a suit against Hillary and Great Place. Coverage applies because the action occurred in the coverage territory and started during the same policy term when Justin filed the claim.

Related Court Cases:

Termination of Employee Was Not a Covered Occurrence

Policy Excludes Injuries Caused by Harassment

b. Defense

NOTE: It is very important to note that defense costs are part of the limit. This means that every dollar spent on defense reduces the amount available to pay for the loss.

The insurance company has both the right and the duty to defend any insured when a claim is filed seeking damages under this coverage. However, the company does not have any duty to defend such claims this insurance excludes. The insurance company may investigate incidents and settle any resulting claims. However, such settlement can be made only with the named insured's written consent.

NOTE: It’s important to remember, the insurance company cannot settle unless the named insured agrees.

The insurance company pays the following when it defends or investigates a claim:

Costs that courts levy against the insured
Fees and salaries of attorneys, paralegals, law clerks, and others that the insured retains. These are covered only if one or more of the following apply:

A court order grants the fees and salaries.
The parties retained are required for a specific hearing or proceeding.
The insurance company gives written consent to the fees and salaries.

Payments are made only if the legal counsel meets the insurance company's or state statute’s minimum qualifications. Salaries and fees of the insured's in-house legal counsel can be paid if the insured’s costs can be documented as applying to a specific covered claim. There is no payment of fees and salaries for any of the insured's other employees.

The insured's loss of earnings for time spent away from work. Up to $250 per day is paid, but this applies only if the insurance company asks the insured to take the time off.
Salaries and fees of attorneys, paralegals, law clerks, and others that the insurance company retains on the insured’s behalf. Fees and salaries of the insurance company's in-house legal counsel can be paid as defense if the costs can be documented as applying to a specific covered claim. Fees and salaries of any of the insurance company's other employees cannot be charged as defense.
Other expenses the insurance company incurs or that the insured incurs at the insurance company’s request are paid if considered necessary.

Example: Great Place presents Justin’s claim to We Pay Up Mutual, its insurance company. We Pay Up wants to settle quickly, but Great Place does not agree. We Pay Up then pays $50,000 to defend the claim. Great Place’s limit of insurance is $300,000. Great Place realizes that the defense is quickly depleting its limits. It also realizes that the claim is more valid than initially thought. As a result, Great Place agrees to the proposed settlement.

c. How Much We Pay

The amount of damages to be paid is described in the “How Much We Pay” section, which will be discussed later in this article. However, once the limit of insurance has been exhausted through a combination of defense costs and damages, all coverage ends.

NOTE: Defense costs are part of the insurance limit and reduce the amount available to pay for damages.

d. Other Amounts

The insurance company only pays amounts specified above or those provided in Supplemental Payments.

2. Exclusions

NOTE: It is crucial to understand that none of the exclusions in the Businessowners Policy apply. The following are the only exclusions that are relevant to this coverage.

The insurance company does not pay for the following:

a. Liability the insured assumes under a contract or agreement related to this endorsement's coverage is excluded. However, this exclusion does not apply to liability the insured has even in the absence of such a contract or agreement.

b. Liability of an insured for an act or omission that is either fraudulent or malicious and committed by the insured, others on its behalf, or others under its direction. The insurance company pays to defend such claims until a legal proceeding determines if the allegations are valid.

c. Liability of an insured for criminal acts or violations of penal statutes. The insurance company pays to defend such claims until a legal proceeding determines whether the allegations are valid.

d. Injury resulting from a wrongful employment practice when workers compensation, unemployment compensation, social security, or disability benefits are provided or should be provided.

Example: One claim Justin made was that Hillary once threw herself at him for a passionate embrace. The impact caused him to fall backwards and injure his back. The damages due to the back injury are excluded because workers compensation coverage applies to that injury.

e. Violations of any of the following:

Fair Labor Standards Act (FLSA)
Employee Retirement Income Security Act (ERISA) of 1974
Consolidated Omnibus Budget Reconciliation Act (COBRA)
Workers Adjustment and Retraining Notification Act (WARN)
Similar municipal, state, or federal laws to any of the above

Any amendments to the above are also excluded.

The only exception to the above is the Equal Pay Act. This means that coverage applies to equal pay actions.

f. Claims for wrongful employment practices due to strikes, lockouts, replacing picket lines, or hiring replacement workers. This includes similar or related acts involving labor disputes, labor negotiations, or conduct prohibited or protected by the National Labor Relations Act (NLRA) and/or similar federal, state, or local statutes.

g. Claims for wrongful employment practices due to one or more plants or locations of business operations reorganizing, downsizing, or closing. This exclusion applies only if more than 20% of the named insured's total employees will be terminated within any 60-day period.

h. Claims for wrongful employment practices due to the insured failing to comply with the public accommodations provisions of the Americans with Disabilities Act (ADA), any amendments to it, or similar laws or provisions in federal, state, or local statutes or case law.

i. Costs incurred to modify a building, structure, or property to create or increase a disabled person’s access as the Americans with Disabilities Act (ADA) requires. This also applies to any amendments to the act and similar laws or provisions in federal, state, or local statutes or case law.

j. An insured's liability for an intentional wrongful employment act. The insurance company pays to defend such claims until a legal proceeding determines if the allegations are valid.

Example: There is no coverage for Hillary because her actions toward Justin were intentional. However, Great Place is also an insured on the policy, and We Pay Up continues to defend it.

k. Claims for consequential injury brought by family members, domestic partners, or relatives of any person who alleges they were subject to a wrongful employment practice.

Example: Justin’s wife files a lawsuit because of her injuries due to Hillary’s advances toward Justin. We Pay Up does not defend against her allegations.

l. Claims for wrongful employment practices because the named insured has some type of financial impairment. Examples are bankruptcy, insolvency, receivership, liquidation, mergers, or acquisitions.

m. Claims for bodily injury, property damage, or personal and advertising injury.

n. Claims due to wrongful employment practices that were the basis of litigation of any other insurance company that began before this coverage's inception date.

Example: Great Place really values Hillary, but this is the second time she has been named in a wrongful employment practices claim. Fortunately for Great Place, the prior action alleged that she retaliated against an employee who filed a workers compensation claim, even though Hillary had told her to file the claim under her health insurance and lie about the circumstances. Great Place has coverage for the sexual harassment action because the claims were of different types of wrongful acts.

o. Claims arising from retaliatory actions taken against an employee for filing or allegedly filing a claim or lawsuit under the federal False Claims Act. This also includes any amendments to the act, as well as similar laws or provisions found in federal, state, or local statutes or case law.

Supplemental Payments

Supplemental Payments of the Businessowners policy is deleted and replaced by the following for this endorsement:

The below payments are made in addition to the limit of insurance and are not subject to a deductible:

a. Pre-judgment interest awarded against the insured on its part of the judgment. However, the insurance company does not pay any pre-judgment interest after the date it offers to pay the limit of insurance that applies.

b. Interest that accrues on the total amount of a judgment. This begins when the judgment is entered. It ends when the insurance company tenders, deposits with the court, or pays its portion of the judgment up to the limit of insurance that applies.

What Must Be Done In Case Of Loss

The What Must Be Done in Case of Loss section of the Businessowners policy is deleted and replaced by the following for this endorsement:

1. Notice

a. The named insured must inform the insurance company or its agent in writing whenever they receive a claim or become aware of an incident that could potentially result in a future claim covered by the policy. The notice should include at least the following details:

The name of the insured who learned of the allegation.
The name of the insured who is accused of the wrongful employment practice.
The policy number.
Dates, times, places, and a description of the action that allegedly occurred.
The names and addresses of anyone who could be called as a witness and anyone who could potentially be a claimant.

The insured who first became aware of a potential claim may also be the one who allegedly committed the wrongful act. In that case, the lack of notification by that insured is not considered a breach of this coverage form’s duty with respect to all other insureds.

Example: Mary has put up with the actions of Paul, her supervisor, for six months and is fed up. She tells him that she will file a sexual harassment claim against him and their employer, Gracious Office Furniture, if he ever makes another sexual advance toward her. He considers her outburst cute and a little bit flirtatious and promptly makes another sexual suggestion. She eventually engages an attorney and sues Gracious Office Furniture. Gracious immediately forwards the claim to its insurance company. Even though Paul knew about a potential claim much earlier, it is not held against Gracious because Paul was the problem.

2. Other Duties

a. The named insured and any other insured involved in a claim or suit have certain duties. They must do all the following:

Send the insurance company copies of all legal papers, demands, and notices received that relate to the claim or suit. This must be done promptly.

NOTE: This is especially important because of time deadlines associated with many legal documents.

Cooperate with and assist the insurance company, when requested to do so, as follows:

Investigate, defend, and settle the claim or suit.
Attend trials, hearings, and proceedings.
Enforce rights against parties that may be liable to any insured for damages, related defense costs, and any other costs the company incurs for claims or suits that allege a wrongful employment practice.
Secure and give evidence.
Make sure that all witnesses attend.
Provide written authorization to obtain records and other information as the law permits.

b. An insured has the right to make any payment, incur any expenses, or assume any obligation seeking the coverage this endorsement provides, but if it does so without obtaining the insurance company's prior written consent, it does so at its own cost and expense.

Example: Lavish Landscaping has Employment Practices Liability coverage from Cheapskate Casualty. Its executives become aware of a discrimination offense by a division manager. Lavish offers the plaintiff $100,000 if she agrees not to pursue a claim or legal action, and she accepts the payment. Lavish did not contact Cheapskate about the complaint, and coverage does not apply to the $100,000 payment.

How Much We Pay

The How Much We Pay section in the Businessowners Policy is replaced with the following:

NOTE: Remember the defense limits are within these limits.

1. Coverage F–Employment Practices Liability Limits

The Coverage F–Employment Practices Liability Limits on the endorsement schedule are the most the insurance company pays for damages and related defense costs. This applies regardless of the number of insureds this endorsement covers, persons, organizations, or governmental agencies that make claims or bring suits, or claims made, or suits brought.

The insurance company's investigating, settling, or paying claims, defending, or settling suits, or paying judgments under this coverage is not an admission of its liability under any other coverage.

NOTE: Purchasing sufficient limits is critical. The insured must understand the legal climate surrounding EPLI issues and the fact that anyone may be exposed to an EPLI claim. The agent/broker and insured should investigate the legal expenses involved in a typical EPLI suit and consider the possibilities of more than one claimant. Defense costs may equal or exceed the actual damages named in the claim, especially if a group of employees files claims.

Example: Big Cash Inc. has a $1,000,000 limit of insurance on its Employment Practices Liability coverage. Five women believe they were passed over for a promotion in favor of a man, and each file a claim for damages of $250,000.

The judicial action determines there was gender discrimination and awards each claimant $150,000. The defense expenses total $500,000. The limit of insurance covers the $750,000 in damages and $250,000 in defense expenses.

Awarded Amount = $750,000

Defense Cost = $500,000

Cost of lawsuit = $1,250,000

Big Cash is responsible for the other $250,000 of the defense expenses because the limit of insurance caps at $1,000,000.

2. Coverage F–Employment Practices Liability Aggregate Limit

The Aggregate Limit on the endorsement schedule is the most the insurance company pays in each annual policy period for the total of all damages and related defense costs for claims this endorsement covers. The limit applies separately to each consecutive 12-month period starting with this coverage's inception date.

If the policy period is extended for periods of less than 12 months, the aggregate limit that applied to the preceding 12 months also applies to the extension period.

3. Coverage F–Employment Practices Liability Each Claim Limit

The Each Claim Limit on the endorsement schedule is subject to the Coverage F–Employment Practices Liability Aggregate Limit. It is the most paid for the total of all damages and related expenses for a claim that this endorsement covers.

NOTE: There is no statement that all actions from a single wrongful action constitute a single claim. Therefore, this could mean when multiple persons present claims from a single wrongful employment action, this may be considered multiple claims.

4. Deductible

The deductible on the endorsement schedule applies to each claim and related defense costs separately. The insurance company does not pay for any damages or defense costs less than the deductible amount, except as Additional Conditions–Settlement of Deductible provides. If any combination of damages and defense costs exceeds the deductible amount, the company pays for damages and/or related defense costs that exceed the deductible up to its limit of insurance.

Example: A total of four claims are made against Hillary and Great Place. Great Place is subject to a $10,000 deductible. This means that Great Place must pay $10,000 on each claim after the insurance company finishes handling the claims.

Additional Conditions

1. New Additional Conditions

a. Settlement of Deductible

The insurance company may pay all or part of the deductible amount to settle a claim or suit. When this happens, the named insured is expected to reimburse the deductible as soon as the insurance company informs them of the amount it owes.

b. Consent to Settle

The insurance company may reach a settlement with the claimant that the named insured rejects. If the suit is settled at a later date, the company's maximum payment for settlement and defense is capped at the rejected amount.

Example: Speedy Settlements Assurance and the claimant in a sexual harassment case against Moe's Machinery Manufacturing agree to settle for $300,000. Speedy incurred $15,000 in defense costs at the time of the settlement agreement. Moe states that he is not guilty, disagrees with the amount, refuses to settle, and demands a jury trial.

Before the trial ends, Moe realizes that he is going to lose and requests that Speedy negotiate a settlement. It does so, but the claimant’s legal fees are much higher, and the $300,000 previously offered is now inadequate. The claimant settles for $500,000.

In this case, Speedy pays only $300,000 (less the $10,000 deductible) of the $500,000 because that is the amount it could have settled for previously if Moe had agreed. As a result, Moe pays $200,000 plus the $10,000 deductible, and Speedy pays $290,000. In addition, Speedy continued to pay defense expenses, and Moe must also pay the $85,000 in additional defense expenses.

2. Changed Condition

The following deletes and replaces Insurance Under More Than One Policy in the Businessowners Policy.

Insurance under More Than One Policy

a. This coverage is primary for claims first reported during the policy period, except as noted in b. below. The Each Claim Limit and the Aggregate Limit on the endorsement schedule are not reduced when there is other valid and collectible excess insurance.

b. There may be other insurance that is also primary. In that case:

If contribution by equal shares is allowed, the insurance company contributes equal amounts with other companies until it has either paid its limit or the full amount of the claim is paid, whichever comes first.
If contribution by equal shares is not allowed, the insurance company pays up to its limit in the proportion that its limit bears to the total of the limits of all policies that provide coverage.

Extended Reporting Period

This section is added because this endorsement provides coverage on a claims-made basis. The extended reporting period is not automatic. This provision explains when and how it can apply.

1. Provisions

The named insured may purchase an Extended Reporting Period under any of the following circumstances:

The named insured cancels or does not renew this coverage.
The insurance company cancels this coverage for reasons other than the named insured not paying the premium.
The insurance company decides not to renew this coverage.
The insurance company renews or replaces this coverage with other claims made coverage, and with a Retroactive Date later than the date (if any) on the endorsement schedule.
The insurance company replaces this coverage with other coverage that is not on a claims-made basis.

2. Availability

The Extended Reporting Period must be endorsed to the policy with an additional premium charged. The premium charge can be up to 200% of this coverage's most recent annual premium charge. The named insured must request this coverage in writing within 30 days after the earlier of the expiration date or the effective date of cancellation.

The Extended Reporting Period takes effect only if the additional premium is paid by the due date. Once the premium is paid, it is considered fully earned, and neither the named insured nor the insurance company can cancel the Extended Reporting Period.

3. Coverage Period

The Extended Reporting Period starts at the end of the policy period. It has a three-year period that can be modified on the endorsement schedule. It does not extend the policy period or amend the coverage provided.

Claims are subject to the following requirements:

The wrongful employment practice must have occurred in the coverage territory.
The wrongful employment practice must have begun on or after the Retroactive Date (if any) and before the end of this coverage's policy period.
A claim must first be made against an insured during the Extended Reporting Period.

4. Separate Aggregate Limit

The Extended Reporting Period has its own separate aggregate limit of insurance. This limit is equal to the Employment Practices Liability Aggregate Limit of Insurance that was in effect during the policy period. It applies throughout the entire term of the Extended Reporting Period, regardless of the number of years in effect.

Additional Insureds

This is a new section.

The definition of insured extends to include the following with respect to the coverage this endorsement provides. An entry for it on the endorsement schedule triggers the insured status.

Newly Acquired Organizations

The term "insured" refers to any organization that the named insured forms or acquires, as long as it holds a majority interest in that organization. However, newly formed or acquired joint ventures, partnerships, or limited liability companies are not considered insureds. The named insured is required to notify the insurance company about any organization it has formed or acquired as soon as possible.

It is important to note that newly formed or acquired organizations are not covered for any offenses that occurred before the named insured took control of them. Furthermore, these organizations will no longer be considered insureds 90 days after their formation or acquisition. This coverage is also subject to the expiration date of the policy.

All Employees

Insured includes the named insured's employees. However, the insurance company does not pay for the liability of employees who commit acts of sexual harassment.

Supervisory Employees

Insured includes the named insured's supervisory employees. However, the insurance company does not pay for the liability of supervisory employees who commit acts of sexual harassment.

Example: Great Place paid for only its supervisory employees to be insureds. This means that Hillary is covered. However, in this case, she is not covered because she committed an act of sexual harassment.

Controlling Interest

Insured includes the person or organization on the endorsement schedule as an additional insured. Liability is limited to liability arising out of the additional insured's financial control over the named insured and the named insured's employment-related practices.

Designated Person or Organization

Insured includes the person or organization on the endorsement schedule as an additional insured. This is limited to only liability arising out of the named insured's employment related practices.