Two mutually exclusive goals are beginning to result in apparently unintended results within the executive and professional liability markets. The quest for underwriting profits and the desire to develop clear (to whatever extent possible) coverage language have rapidly changed the coverage landscape within these two lines of coverage.
We recently received an employment practices liability (EPL) quote which did not include specimen forms and endorsements (not out of the ordinary). Once the necessary forms were received, a review of the policy forms found the customary bodily injury (BI) and property damage (PD) exclusionary language along with the usual and customary "carve back' for emotional distress (giving back coverage for "emotional distress" arising from "wrongful employment acts"). Such "carve back" is expected and necessary given that greatest amount of damages awarded in EPL claims are for the emotional distress arising from employment-related wrongful acts. But our curiosity was aroused by the inclusion of new exclusion, the "Absolute BI/PD Exclusion," eliminating the "carve back."
The addition of such exclusionary wording might lead some to opine that coverage for "emotional distress" is made "illusory" (an illusion, not real) and that an ambiguity now exists in the definition of a "workplace tort." Since the definition of workplace tort includes, in part, "wrongful infliction of emotional distress, mental anguish or humiliation ...," this opinion appears to be correct. Unfortunately, recent court decisions have found such "absolute exclusions" to be "clear and unambiguous." The result is a finding of no coverage (leading to errors and omissions claims against the broker). Interestingly, such a finding would seem to confirm that coverage was indeed "illusory."
To complicate matters even further, the broker's E&O carrier may be able to escape if their policy includes an exclusion for any claim "arising ...indirectly... from any claim involving wrongful employment practice acts." That too might trigger a claim against the broker providing the E&O policy and so the endless chain begins.
There is no real concern over this one event or within this purely academic exercise. The real threat is the current trend towards the use of "absolute exclusions," the consequences of which are real. Depending on the context, one's opinion, or whether it is the underwriting department or claims department making the decision, the resulting denial of otherwise covered claims may be unintended or intended despite the evolution of how the exclusionary endorsements came into being.
Frederick J. Fisher, JD, is the President of Fisher Consulting Group, Inc., a Professional Liability firm. Since his career began, Mr. Fisher focused on one vision: providing financial security to the client. The result was a successful 40 year career in Specialty Lines Insurance.
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