While interactions between the industrial and workplace
relations sphere and insurance have traditionally been focused on
workers' compensation or common law work injury damages claims,
the last decade has seen a rise in Employer Practices Liability
EPL insurance originated as a way to fill in the gaps of
standard general liability policies, and now covers employers in
the event of claims brought by past, present or prospective
employees alleging employment-related wrongful acts. This can range
from unfair dismissal claims to sexual harassment matters, to
insuring employers for work health and safety breaches.
As employees have become more aware of their legal rights, so
too have employers increasingly sought to protect themselves
against the monetary costs of legal claims through EPL insurance.
The employment relationship is, and has always been, fraught with
risk, as was evidenced in two cases handed down by the Federal
Circuit Court and Federal Court in 2014, where two employers
– one a small photography business and the other one of the
world's largest IT companies – were found to have
discriminated against their employees. In both cases, the employee
in question was awarded over $100,000 in damages.
While the rise of EPL policies has been a positive development
for insurers and their insured employers, who are afforded a degree
of peace of mind in relation to claims made by disgruntled
employees, difficulties can sometimes arise in EPL policies where
the insured employer and their insurer have conflicting desires in
relation to management of potential legal claims.
Due to the often emotionally-charged nature of workplace
disputes, insured employers, particularly those in small-tomedium
sized enterprises, can have a higher degree of personal investment
in these matters. For example, an employer who has terminated an
employee for serious misconduct for stealing from their till would
be reluctant to offer any monetary settlement when confronted with
an unfair dismissal claim from this employee. The insured may
remain of this view even if it would be much more cost effective to
reach an informal settlement agreement with the employee as opposed
to defending the proceedings to the fullest extent.
It is therefore often the case that these employers can
understandably find it difficult to separate matters of principle
from the prospect of resolving potential legal claims by employees
in the most commercial manner.
As lawyers instructed to act in these matters, it is our role to
represent the interests of both the insured and the insurer to
achieve the most commercial outcome in the circumstances. Reaching
a point of resolution in these matters commonly takes into account
the legal risks associated with any potential claim by the employee
in question, together with non-legal factors, such as reputational
harm to the insured employer.
In cases of conflicting desires of insurers and insured
employers in relation to management of potential legal claims
– for example, where an employer wishes to contest a matter
but the insurer sees the value in negotiating an early, commercial
settlement – it is therefore our approach to facilitate
dialogue between the insured employer and the insurer to re-align
While the insured's principles are important and should be
recognised, the burden legal matters can place on businesses in
terms of reputational harm and the disruption associated with
litigation – for example, requiring members of the business
to be available to give evidence in hearings that can sometimes
stretch for weeks – are significant. Insurers are well versed
in these difficulties, however, such challenges are often unknown
to insured employers who are faced with their first legal claim
from an employee. The costs of litigating a disputed matter, while
sometimes justified, are well known.
It is our experience that opening up such a dialogue between the
insurer and the insured usually resolves these difficulties, and
encourages the adoption of a "middle ground approach"
between recognising an insured employer's matters of principle,
and achieving the best commercial resolution of the employee's
claim while minimising associated costs.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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Contractors and principals should ensure they have appropriate insurance coverage instead of relying on indemnity clauses.
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