Legal Definitions - employment-related-practices exclusion

An employment-related-practices exclusion is a specific clause commonly found in certain insurance policies, particularly general liability policies. This clause states that the insurance policy will not provide coverage for claims, lawsuits, or liabilities that arise from an organization's actions, decisions, or policies related to its employment practices. These practices typically include, but are not limited to, hiring, firing, promotion, discipline, workplace harassment, discrimination, retaliation, or other terms and conditions of employment.

Essentially, this exclusion means that if an employer faces a legal challenge from an employee or job applicant concerning these types of issues, their standard liability insurance policy will not cover the associated legal defense costs or any damages awarded. Organizations often purchase specialized insurance, such as Employment Practices Liability Insurance (EPLI), to cover these specific risks.

Here are some examples illustrating how an employment-related-practices exclusion might apply:

• Wrongful Termination Lawsuit: A small manufacturing company has a general liability insurance policy. After terminating an employee for alleged poor performance, the employee sues the company, claiming wrongful termination and breach of contract. When the company submits the claim to its general liability insurer, the insurer denies coverage. They cite the employment-related-practices exclusion in the policy, explaining that claims stemming from the termination of an employee are not covered. The company must then bear the costs of its legal defense and any potential settlement or judgment out of its own funds.

• Age Discrimination Claim: A technology startup is sued by a former job applicant who alleges they were not hired due to age discrimination. The startup's general liability policy contains an employment-related-practices exclusion. When the startup seeks coverage for the legal costs of defending against the discrimination lawsuit, the insurance company points to this exclusion. They clarify that claims related to hiring decisions and discrimination are explicitly excluded from coverage under that particular policy, requiring the startup to fund its defense independently or through a separate Employment Practices Liability Insurance (EPLI) policy if they had one.

• Workplace Harassment Allegation: A retail store owner carries a comprehensive general liability policy. A cashier files a lawsuit against the store, alleging sexual harassment by a store manager. The owner contacts their insurance provider, expecting coverage for the legal defense. However, the insurer informs the owner that the claim falls under the employment-related-practices exclusion. Because the lawsuit directly relates to workplace conduct and harassment, which are considered employment practices, the general liability policy will not cover the legal expenses or any potential damages resulting from the harassment claim.