Employers Must Read EPLI Policies Carefully

Employers who purchase employment practices liability insurance (EPLI) must read their policies carefully to ensure coverage will be available when it is most needed. A federal trial court recently held that a major retailer was not entitled to coverage under its EPLI policy when it was sued by the U.S. Equal Employment Opportunity Commission (EEOC), because the policy only covered lawsuits brought by employees.

In Cracker Barrel Old Country Store, Inc. v. Cincinnati Ins. Co. (M.D. Tenn. 2011), 10 Cracker Barrel employees filed discrimination charges with the EEOC, leading the EEOC to sue the company under Title VII of the Civil Rights Act of 1964. Cracker Barrel eventually entered into a consent decree with the EEOC, which required it to place $2 million in a settlement fund. By the time Cracker Barrel entered into the consent decree, it had already spent some $700,000 in its own legal defense. Cracker Barrel sought to recover the defense and settlement costs under its EPLI insurance policy.

The court held that Cracker Barrel was not entitled to recoup the $700,000 it spent defending itself, or the $2 million the EEOC required it to place in a settlement fund. While Cracker Barrel argued it was entitled to coverage of any liability which “evolved from” or was started “as a result of” a complaint or charge brought by its employees, the court was not persuaded, as neither of those terms could be found in the EPLI policy’s liability definitions. Ultimately, the court held that the insurers did not have a duty to indemnify Cracker Barrel for any part of the $2.7 million it paid to defend against and settle the complaint.

As this decision demonstrates, EPLI policies are only one part of an effective approach to avoiding legal liability. Good policies and practices, coupled with sound legal counsel, are still your best defense.