Mercator Risk Services | Combining EPL with D&O

Directors and Officers Liability

Combining EPL with D&O

Is it better to combine Employment Practices Liability Coverage (EPL) with a Directors & Officers (D&O) Liability policy, or provide them on separate policies?

In most cases (but not all) the best theoretical solution is also the most expensive. Providing EPL in a D&O policy with separate limits, or on a separate policy, provides better protection for the insured. But the difference comes at a high cost. The insured is in the best position to judge the trade off between the level of coverage and cost.

Mercator Risk Services - Our Solutions:

Our Mainstream Solutions for private company D&O and for non-profit D&O offer the option of separate D&O and EPL limits at an additional price. The insured can compare and decide.

Virtually all Directors & Officers (D&O) Liability policies provide Employment Practices Liability Coverage (EPL) as either an integral part of the form or as an optional coverage. So do you provide EPL as part of a D&O policy or as a standalone coverage? Mercator Risk Services can provide EPL on either basis, but the better approach varies by account and depends upon a variety of factors. Our analysis is as follows:

Why a stand-alone EPL policy can be better:

Erosion of Limits. Combined D&O and EPL policies typically have a combined limit which applies to both coverages, while purchasing a separate EPL policy provides separate limits for EPL. Why is this an issue? An EPL claim under a D&O policy providing EPL coverage reduces limits available to individual directors and officers. Most directors believe the primary purpose of D&O coverage is to protect the personal assets of the directors and officers, and erosion of the limits from an EPL claim reduces the limits available for the directors and officers.

Why combined D&O/EPL coverage can be better:

Price. For smaller accounts, particularly those that don’t need large limits, it may make economic sense to combine the coverages. Most non-profit D&O forms include broad EPL and entity coverage with very low retentions, and most of the exposure for these organizations is EPL.

Conclusion

So - what is the best alternative? In theory a separate policy for EPL provides better protection for the personal assets of the directors and officers. However, the same objective can be achieved through a combined policy with separate D&O and EPL limits. Our recommendation is to price various limit options on a combined limit and separate limit basis and the insured can weigh the coverages and costs.

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