1. Forms
2. EP
3. EP-03-02

What the form is

The EP 03 02 Deductible and Co-Payment Liability Insurance endorsement is an optional addition to an Employment-Related Practices Liability (EPL) insurance policy. Its primary function is to introduce a cost-sharing mechanism where the insured party is responsible for both a deductible amount and a subsequent co-payment percentage for covered losses. This means that after the insured pays the initial deductible for a claim, they will also pay a predetermined percentage of the remaining loss, up to a specified maximum co-payment amount.

Classes of business it applies to

This endorsement is relevant for any business or organization that purchases Employment-Related Practices Liability (EPL) insurance and is willing to retain a greater portion of the risk in exchange for potentially lower premiums. EPLI policies themselves are crucial for a wide array of businesses, regardless of size or industry, as they provide coverage against claims made by employees, former employees, or potential employees alleging wrongful acts such as discrimination, harassment, wrongful termination, and other employment-related issues.

Real-world examples include:

• A medium-sized tech company looking to manage its EPLI premium costs might opt for this endorsement, agreeing to a $10,000 deductible and a 20% co-payment on losses thereafter, up to a maximum co-payment of $25,000.
• A non-profit organization with a stable employment history might choose this endorsement to reduce its insurance expenses, understanding it will share in a portion of any significant employment practices claim.

Special considerations

When considering the EP 03 02 endorsement, several factors are important:

• Financial Capacity: The insured must have the financial ability to cover both the deductible and the co-payment amount in the event of a claim. This requires a careful assessment of potential loss scenarios and the organization's cash flow.
• Risk Appetite: This endorsement is suitable for insureds with a higher risk appetite, as it increases their out-of-pocket expenses per claim compared to a policy with only a straight deductible or no co-payment.
• Clarity of Terms: The deductible amount, co-payment percentage, and the maximum co-payment amount must be clearly stated and understood in the policy schedule.
• Impact on Defense Costs: It's important to clarify whether the deductible and co-payment apply to defense costs in addition to indemnity payments, as this can significantly affect the insured's total exposure.

Key information for agents and underwriters

For insurance agents and underwriters, the EP 03 02 endorsement presents specific points for consideration:

• Agents: Agents should thoroughly explain the financial implications of this endorsement to their clients. This includes illustrating how the deductible and co-payment would apply in various claim scenarios to ensure the client understands their potential costs. It's crucial to align the endorsement with the client's risk management philosophy and financial capabilities.
• Underwriters: Underwriters will evaluate the insured's financial stability and loss history when approving this endorsement. A strong financial standing might make an insured a good candidate for a higher deductible and co-payment structure. The underwriter will also consider the nature of the insured's business, employee count, HR practices, and past claims experience to determine appropriate terms and pricing. This endorsement can be a tool to make EPLI coverage more accessible or affordable for certain risks, but it requires careful assessment of the insured's ability to participate in the loss.