1. Forms
2. EP
3. EP-01-12

What the form is

The EP 01 12 "Who Is an Insured - Restricted Coverage for Employees" is an amendatory endorsement used with ISO Employment-Related Practices Liability (EPL) coverage forms. Its primary function is to narrow the definition of who qualifies as an "insured" under the policy with respect to employees. Specifically, it limits coverage for employees to only those who are or were in supervisory or managerial positions. Non-supervisory and non-managerial staff are generally excluded from being considered insureds in their individual capacity by this endorsement.

Classes of business it applies to

This endorsement can be applied to a wide range of businesses that carry Employment-Related Practices Liability insurance. It is often considered by employers who wish to manage their EPL exposure and costs by limiting the number of individuals who have insured status. Examples include:

• Companies with a large workforce of non-managerial employees where the employer wants to centralize the defense and control of EPL claims primarily at the management or corporate level.
• Organizations seeking potential premium savings by reducing the scope of coverage.
• Businesses where the primary EPL exposure is perceived to originate from the actions or decisions of management-level personnel. For instance, a manufacturing company with many line workers might opt for this if they believe the risk of employment practice wrongful acts by those workers (that would trigger individual insured status) is low or managed through other means.

Special considerations

There are several important considerations when using the EP 01 12 endorsement:

• Coverage Gap for Non-Managerial Employees: The most significant implication is that non-supervisory and non-managerial employees will typically not have coverage under the EPL policy for claims made against them individually for employment-practice wrongful acts. While the company (Named Insured) would still be covered for its vicarious liability arising from the acts of these employees, the employees themselves might be left without personal coverage under this policy.
• Clarity of Definitions: It is crucial to clearly define what constitutes a "supervisory" or "managerial" employee within the organization to avoid ambiguity in the event of a claim. This may need to be documented or align with the company's HR classifications.
• Impact on Employee Morale and Defense: Excluding a large portion of the workforce from insured status could potentially impact employee morale if perceived negatively. It also means the insurer may not have a duty to defend these non-managerial employees individually.
• Alternative Coverage: Insureds should consider if there are other policies or mechanisms in place that might offer some protection to non-managerial employees for employment-related issues.

Key information for agents and underwriters

• Risk Assessment: Underwriters should carefully assess the insured's rationale for requesting this endorsement. It's important to understand the employer's structure, HR practices, and how they manage risks from non-managerial staff. The restriction might be acceptable if the overall risk of individual claims against non-managerial employees is low or if the insured has robust internal controls.
• Pricing Implications: Restricting coverage to only managerial and supervisory employees generally reduces the insurer's potential exposure, which may result in a premium credit. The amount of credit would depend on the insurer's rating methodology and the proportion of non-managerial staff.
• Agent's Duty (E&O): Agents must thoroughly explain the significant coverage restriction to the insured. Documenting this discussion is critical to prevent potential Errors & Omissions (E&O) claims if a non-managerial employee later finds themselves without coverage.
• Underwriting Guidelines: Insurers will have specific underwriting guidelines regarding the use of this endorsement. It may be more readily offered to larger, well-established businesses with sophisticated HR departments. Underwriters will also consider the claims history and the nature of the insured's operations.
• Interaction with Other Policy Terms: Consider how this endorsement interacts with other policy terms, such as the duty to defend, severability of interests, and cooperation clauses.