The communication advantage: Strengthening EPL claims through clarity and consistency

Workplaces continue to undergo a transformation driven by hybrid and remote working models, technological advancements using AI and ever-evolving regulatory demands, which can be challenging and especially frustrating to navigate for multinational employers. While the working environment continues to change and evolve, one thing remains constant: Employment practice liability insurance (EPLI) continues to be a critical piece in an organization’s risk management toolbox as the frequency and severity of workplace-related claims and litigation continues to rise.

In FY2024, 88,531 discrimination charges were filed representing a 9% increase from FY 2023 and is the third straight year of increased filings with retaliation still being the number one allegation. According to WTW’s claim tracking tools, our claim notifications have increased 17.2% year-over-year since 2023. Severity has also increased. In 2024, the average employment verdict went up to $5.1 million, a steep increase from $2.3 million in 2023. With an increase in employment claim frequency and severity also comes an increase in the cost to defend these claims. “According to the U.S. Bureau of Labor Statistics, attorney fees for labor and employment legal services have surged 20% since 2022 and 39% since 2015.”

Given the current employment claim environment, securing the best and broadest insurance coverage is essential for organizations. However, as you may already know, the real test of how that policy will respond comes when a claim is filed. That is where the rubber meets the road. In those moments, technical expertise is critical; however, as former insurer claims professionals, effective communication, both within an insured organization, as well as between the insured, insurers and defense team, is an equally important part of the claims process and is often determinative of whether the claim experience is a positive or negative one. In our experience, clear, meaningful and consistent communication is one of the most effective ways to protect coverage, build trust, control costs and improve claim outcomes for both the insured and insurer.

How an insured organization is structured plays a significant role in how claim information is shared between departments, which affects how and when that information is communicated to the insurer, which can influence a claim outcome. It's critical for human resources (HR), legal, management and risk management to be aligned and communicate regularly during the life of a claim. Not doing so may lead to each department within the insured organization interpreting the same claim event or policy trigger differently, which can create communication gaps with the insurer that may negatively impact coverage.

For example, EPLI policies are typically written on a claims‑made or claims‑made-and‑reported basis, meaning that claims made during the policy period must be reported within the period specified, often during the policy period but no later than 60 or 90 days after expiration. If an employee complaint arises, a late-notice issue may arise if the various departments lack a shared understanding of what constitutes a “claim” under an EPLI policy. Conversely, when information is shared routinely, “claims” and potential claims are more likely to be recognized and reported promptly.

Another potential issue that may arise and may impact coverage is the retention of defense counsel. Oftentimes, organizations have preferred counsel they routinely use for employment matters and may expect their choice will be accepted by the insurer, but this can't be assumed. Prior to retaining counsel, it's important to confirm what the insurance policy says about the duty to defend, the right to select counsel and what and whose consent must be obtained prior. The right to select counsel is rarely unfettered and depending upon the policy, carries conditions which affect rights and duties and the failure to comply with the policy and/or obtain the required prior consent could risk recovery of full policy benefits.

As for communication between insureds and the insurers, this is just as important as internal communication within the insured organization. Ideally, the relationship between the insured and insurer should function as a partnership. This partnership is necessary, especially when navigating sensitive employment practices claims that require cooperation, transparency and at times, quick decision making. When both the insured and insurer are aligned in terms of the litigation and resolution plan, the expected overall defense spend, liability and damage potential exposure, and the coverage and potential limitations, the parties can resolve claims more quickly and with less friction, which builds trust and strengthens the relationship.

As one would expect, when information is delayed, incomplete, or unclear, the partnership can break down. Over time, gaps in communication can easily lead to misunderstandings, frustration and even mistrust on both sides, which can create coverage issues. Below we touch on a few common scenarios that we have encountered with the understanding that no two policies are the same. It's always imperative that the entirety of the specific policy is read carefully to understand and become familiar with the applicable terms, conditions and obligations.

1. Misunderstanding of key policy definitions and notice triggers: A top misunderstanding with an EPLI policy is what constitutes a “claim.” To minimize the risk of late-notice issues, it's important to have a full understanding of the definition of “claim” and ensure that those key stakeholders are aware that “claims” aren't just limited to lawsuits but generally include, at a minimum, agency charges of discrimination and demand letters seeking relief.
2. Consent to settle or to incur defense costs: Many policies require prior written consent from the insurer before the insured can incur defense costs, admit liability or extend an offer to settle. Insurer consent may also be required within the policy self-insured retention. Policies may also specify that the insured must provide the insurer with the information and documentation requested for the insurer to reach a decision as to consent. Failure to obtain consent or to produce the requested information could lead to an otherwise covered claim to be denied or subject to limitation in terms of what is reimbursed.
3. Claim resolution delays: Like the insured, insurers have an obligation to communicate timely with the insureds. Many states impose regulations on insurers detailing when claims must be acknowledged, coverage positions taken and covered claims paid. When insurers fail to promptly identify potential coverage issues and fail to engage in timely discussions with the insured and their broker about these issues, it can result in delays and confusion, which can negatively impact the parties’ ability to engage in settlement discussions informally or formally through mediation. This may result in lost settlement opportunities and as a result, increased defense costs as well as more time spent on litigation defense rather than managing the insured’s business.

Many of these issues can be minimized or avoided when both the insurer and the insured are aligned as partners in the claims process. The insured’s broker and claims advocate can help in establishing and developing this partnership. The claims advocate, as intermediary, can provide keen insight on insurer and insured policy obligations, assist in the claim process from start to finish, facilitate and help maintain regular communications with the necessary insurer representatives and help identify and potentially resolve coverage issues so that the parties continue moving the claim toward resolution without unnecessary delays and interruptions.

In some instances, questions or concerns regarding confidentiality and privilege may arise. Insureds should consult with counsel to determine the best course of action regarding protecting communications and work product. Navigating such issues can be tricky; however, this should be done early in the claims process to not inhibit the flow of information in accordance with the policy terms and conditions. It's important to note that depending upon the requested authority, most insurers need time to review the claim documentation and evaluation of liability and damages to assess reserves, which may lead to further delays if information necessary to such evaluation isn't received in a timely manner and well in advance of any opportunity to settle.

In conclusion, some best practices to keep in mind include:

1. Stay connected internally: Regular cross-departmental check-ins help identify and spot issues and any matters that may need to be reported to insurers. If a situation comes up during internal check-ins and you aren't sure if the matter warrants notice, contact your broker and claim advocate to discuss. If you have any doubt, notice the matter to your primary and any excess carriers.
2. Schedule an early introductory call with your assigned claims adjuster and set expectations: Discuss the claim process, address coverage issues early, review together the policy terms and conditions around counsel and consent, and address defense counsel rates, litigation management guideline requirements, the invoice process and to establish subsequent reporting needs and the appropriate schedule for same.
3. Update your claim advocate and insurance claims adjuster with material developments: Providing all pertinent motion filings, settlement demands, whether mediation is being contemplated and when, updates in the defense strategy and any new allegations or counterclaims, requesting and obtaining evaluations and budgets, and other pertinent information and documentation. Secure consent to settle prior to any offers and note that most insurers request 90 days in advance of any request for authority.
4. Rely on your broker and claims advocate: Lean on your broker and claim advocate to provide claim assistance throughout the life of the claim. Seek their assistance to facilitate communications, address coverage issues to be challenged, assist in obtaining insurer consent in advance and secure settlement authority and insurer participation in any settlement conference, if needed or desired.

The end goal of a claim is successful resolution, which means that it was resolved effectively and efficiently and maximum policy benefits were received. Technical expertise is important, but beyond that, a successful claim often boils down to the parties’ ability to effectively communicate with each other throughout the claims process. Coverage letters, privilege concerns and litigation planning require both clarity and coordination among the key stakeholders to any claim. Insureds should seek guidance and assistance from their brokers and claim advocates during the entirety of the claims process.