As the pandemic spread through the United States in 2020, insurance carriers rolled out custom-written endorsements to exclude or limit coverage under employment practices liability insurance (EPLI) policies for claims related to COVID-19. Given the potentially significant consequences, businesses should pay close attention to these exclusions when considering policies and premiums.
To date, endorsements have been attached to new policy proposals—not renewals—in major urban centers. The Insurance Services Office has not released standardized pandemic exclusions; rather, these exclusions are being individually written by carriers.
Some carriers are responding to the pandemic by attaching one of several varieties of exclusions for claims that arise in connection with the virus. For example:
“[W]e are not obligated to defend, or pay Loss, including Defense Costs, on account of any Claim which, in whole or in part, alleges employment-related discrimination based upon, arising out of, directly or indirectly resulting from or in consequence of, or in any way involving the coronavirus disease 2019 (COVID-19)…or any disease caused by any mutation or variation of SARS-CoV 2.”
EPLI policies have not generally contained exclusions for claims involving epidemics or pandemics, so endorsements like the one above may not merely be clarifying a pre-existing exclusion, but rather new language that actually narrows coverage. It is certainly possible to read the language above as excluding, for example, claims of discrimination against employees on the grounds they contracted COVID-19. Absent the endorsement, such claims might otherwise be covered as they would constitute potential disability discrimination contrary to state or federal disability law. The endorsement also may be read to exclude coverage of a claim for discrimination against an employee for complaining of allegedly deficient COVID-19 safety protocols in the workplace.
In short, where an employer confronts a claim falling within the scope of an exclusion like the one above, this type of endorsement could have potentially dire consequences for the insured—namely, no coverage.
Particularly during the ongoing public health crisis and struggling economy, the prospect of new policy terms that genuinely narrow coverage worries employers and their counsel. “We’re making a lot of difficult decisions around the safety of our workforce based on uncertain and conflicting data, and these kinds of exclusions may mean we’ll be working without a safety net,” said Cyrus Naim, legal counsel and vice president of business operations at communications technology firm Silvus Technologies, Inc.
To make matters worse for employers, the fact that a business does not have coverage under its EPLI policy may not discourage a capable plaintiffs’ counsel. According to Marcus Spiegel, a partner at Allred Maroko & Goldberg, insurance carriers often place less value on cases where much of the injury is emotional or to the plaintiff’s reputation. Carrier involvement can also impair settlement efforts. So in cases involving COVID-19, where much of the damage is emotional or reputational, removing insurance from the equation should enhance the likelihood of settlement and/or the value of the case.
Other COVID-19 exclusions may not have such significant consequences for coverage. For example:
“This Policy shall not apply, and no benefits shall be available hereunder, for any Claim…that is based upon, or that in any manner arises from, the actual or alleged exposure of an Employee or Claimant to the Coronavirus/COVID-19 or an infectious disease declared by the World Health Organization or a Federal or State public health agency to constitute an epidemic or pandemic, or any actual or alleged response or nonresponse of any Insured to the Coronavirus/COVID-19 crisis.”
EPLI policies commonly exclude coverage for workers compensation claims and personal injury, such as “bodily injury, sickness, disease [and] death,” though they cover claims of emotional distress. To the extent the endorsement above excludes claims arising from “alleged exposure” of an employee to COVID-19, the language may only clarify long-standing exclusions for workers compensation and personal injury claims. This would make certain that claims for on-the-job exposure to COVID-19 are excluded where they otherwise would have likely been covered absent the new endorsement.
EPLI policies also typically exclude claims under the Occupational Safety and Health Act (OSHA). Therefore, the part of the endorsement that excludes claims based on the employer’s “response or nonresponse” to the COVID-19 crisis appears to simply clarify the preexisting exclusion of coverage of alleged OSHA violation claims.
Instead of seeking to explicitly exclude COVID-19-related claims, some carriers are working to exclude claims arising from reductions in force, furloughs, facility closings or other downsizing, whether due to COVID-19 or not. For example:
“[T]he Underwriters shall not be liable to make any payment for Loss in connection with or resulting from any Claim brought by or on behalf of or in the name or right of any Employee terminated as part of a reduction in force, plant, office or branch closing, consolidation, downsizing, layoff, reorganization, or restructuring.”
While EPLI policies consistently exclude claims arising under the Worker Adjustment and Retraining Notification (WARN) Act, they do not generally exclude other claims made by employees terminated in any type of a downsizing action. Endorsements of the type above may exclude claims that would otherwise be covered absent the endorsement, such as claims that terminated employees were included in the downsizing for discriminatory or retaliatory reasons.
Where a defendant-employer has gone through a substantial downsizing and does not have EPLI coverage for a former employee’s potential claim, Spiegel said the lack of coverage may undercut case value. “Where the business is in trouble, insurance may be the only potential source of compensation for our client,” he said. “Thus, all other things being equal, in a reduction-in-force situation with no insurance, we should regard a potential case or our settlement position as weaker.”
Carriers have also taken other approaches to reducing their risk in downsizing situations flowing from the COVID-19 pandemic. Some of the new endorsements implemented during the pandemic require insureds to consult with employment counsel before terminating employees in a downsizing. Coverage may be excluded in cases where the employer failed to consult counsel in advance of the terminations or did so but did not follow counsel’s advice regarding the terminations.
Considerations for Employers
Because of COVID-19, buying a new EPLI policy is likely to be a more complex decision. If you are presented with a policy proposal that includes any of the new pandemic-related endorsements, consider these key factors:
Determine whether the endorsement poses an actual risk of narrowing coverage in a meaningful way or is more of a clarification of coverage. Do not be shy about asking for input from an experienced EPLI broker or employment counsel.
If the endorsement appears likely to narrow coverage to your disadvantage, either send your broker back to negotiate terms with the carrier or ask them to find coverage not subject to such exclusions, if available.
Given that these kinds of endorsements are being attached to new policies at this point in time, renewing your current EPLI policy may be a way to avoid the new endorsements.