Property Casualty

The Letters You Shouldn’t Toss, Bury, or Ignore

Kyle Hougham
Kyle Hougham
Claims, Legal & Compliance

Have you ever had to part ways with an employee? How’d that turn out for you? Hopefully it went smoothly.

At some point, every employer faces the situation of parting ways with an employee. Most times, the separation goes well. However, what happens when — a few months after an employee’s separation — a letter directly from the former employee or a letter branding the Equal Employment Opportunity Commission (EEOC) logo shows up on your desk? Do you ignore it and file it away but never open it? You shouldn’t.

The EEOC is an independent federal agency responsible for enforcing federal laws that make it illegal to discriminate against an employee because of one of the following:

  • Race
  • Color
  • Religion
  • Sex
  • National Origin
  • Age
  • Disability
  • Genetic Information

When a former employee alleges they were wrongfully terminated, more often than not the employee will file a complaint with the EEOC claiming the company fired them because of one of those reasons listed above. Additionally, it’s also as likely that you’ll receive a letter directly from the former employee making similar allegations and requesting the company return them to their prior place of employment.

In 2015 alone, the EEOC received 89,385 complaints from former employees seeking adjudication of their claims. The statistics drawn from the EEOC’s own 2015 Fiscal Year Report show that of the 89,385 complaints received:

  • Almost 65 percent of those claims (or 60,440) were closed after the investigation by the EEOC concluded the claimant had no reasonable cause to file the complaint.
  • An additional 16.7 percent (or 15,440) were administratively closed by the EEOC.

If so many are closed administratively or are deemed to be without merit by the EEOC, then why should you be concerned? The answer is twofold.

  • First, while a majority of the complaints are without merit, at least statistically speaking, each claimant will likely receive a “Right to Sue” letter from the EEOC. That letter will allow them to maintain a civil action directly against their former employer (your company) for wrongful termination.
  • Second, and most importantly, remember that letter you received from the EEOC way back when informing you that Employee X filed a complaint with them? It has a significant impact on your company’s coverage under the Employment Practices Liability Insurance (EPLI) policy.

EPLI, like most executive risk policies, are written on a claims-made basis. This type of policy differs significantly from the occurrence-based policies most businesses deal with daily — think General Liability, Auto Liability, and Workers’ Compensation. A full discussion of the claims-made policy cannot be accomplished in this post; however, it’s imperative to understand the impact an EEOC complaint has on the notice provision of your company’s EPLI coverage.

Notice, or informing the carrier of a potential claim, under a claims-made policy is called a “condition precedent” to obtaining coverage under the policy. “Condition precedent” is just another way of saying you must perform a specific task before the contract is considered in effect or any obligations are expected of either party. In this case, coverage for your company under the policy.

OK, Kyle, get to the point. How does this affect me? The answer is simple. Deep within your EPLI policy is a page which defines a “Claim.” You know what? More often than not, notification of an action by a governmental agency (i.e. EEOC) satisfies that definition of Claim and sometimes even that letter you received from the employee could fall within the policy’s definition of Claim.

Getting to the point, a problem occurs when you ignore the EEOC letter, or the letter you received directly from the former employee, and wait to tell your insurance carrier about it until you receive a lawsuit from the former employee. (You should always tell your Carrier and your broker about the suit as quickly as possible, too.) By that time, maybe 12 to 18 months have passed between the time you first received the EEOC complaint/employee letter and when you go to file the claim with your insurance carrier.

Because of this delay, the carrier has the ability to deny your claim based on the notice provision within the policy. Coverage decisions will always rest with the carrier, and we cannot put words in their mouth. However, we must point out carriers have a good faith basis to do this based on the language in most EPLI policies.

So how do you ensure this scenario doesn’t occur? Tell me. Tell Holmes Murphy. Tell your broker. But most importantly, the minute you get a letter from the EEOC or from your former employee IMMEDIATELY tell your insurance carrier and your broker about it. No matter how baseless you believe the allegations may be. And even if it’s just a hand-written letter from the former employee requesting monetary damages or asking you to reinstate them to their prior position, you absolutely must forward that information on to the carrier and your broker. By forwarding the letters instantly, you’ll help preserve your rights to coverage under the company’s EPLI policy. It also helps to keep the carrier informed of the process. And, depending on the wording of your specific policy, your carrier may be able to provide assistance in responding to the complaint.

Don’t toss, bury, or ignore those employment related letters. Share them right away!

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