Employment Practices Liability Insurance: Not All It’s Cracked Up to Be?


Employment Practices Liability (EPL) insurance has been around a while (since the late 1990’s) but we don’t often see it discussed in Canadian case law. A rare exception was the case of Re Dr. Max Neiman and CGU Insurance Company, a 2002 decision of the Superior Court of Justice in Ontario.

While particulars differ from policy to policy, generally speaking, EPL policies may (at least on their face) provide indemnity for and/or defence of wrongful dismissal, harassment and discrimination claims, whether litigated before a court or administrative tribunal (such as the Human Rights or Employment Standards). They may also cover employment related libel and slander, and sexual harassment and discrimination of non-employees. Some policies even offer punitive damage coverage.

In Re Dr. Max Neiman, the employer, Dr. Neiman, was both the defendant in a wrongful dismissal action in the Ontario Superior Court of Justice commenced by a former employee, and the respondent in two Ontario Human Rights Commission proceedings commenced by former employees. Dr. Neiman had obtained EPL insurance as an extension of his Comprehensive General Liability insurance. The language of the extension read as follows:

We will pay those sums that the insured becomes legally obligated to pay as compensatory damages because of “personal injury” to which this insurance applies…We will have the right and duty to defend any “action” seeking those compensatory damages…

“Personal injury” was defined in the policy as:

“…injury, other than “bodily injury”, arising out of one or more of the following offences:

  1. Wrongful dismissal, but not with respect to:
    1. liability assumed by the Insured under any contract or agreement;
    2. severance pay or allowances required to be paid by statue, or required under the terms of an employment contract or collective agreement

Not surprisingly, given the policy wording, the court held that the wrongful dismissal claim was not covered under the policy because wrongful dismissal is, at its essence, a claim in breach of contract, which was excluded under the policy. However, the court did comment that any claims connected to the conduct of wrongful dismissal (such as claims for damaged reputation, misrepresentation, bad faith and wrongful accusations) would be covered under the policy. The court was not unsympathetic to Dr. Neiman, commenting that the average person would not understand that wrongful dismissal was not really covered at all under the policy, but held that the appropriate remedy was not intervention by the court but rather legislative or commercial pressure.

With respect to the human rights complaints, the outcome was somewhat different, although coverage was still denied. The claim of the employee who alleged that Dr. Neiman failed to provide her with a harassment free work environment and terminated her employment instead of dealing fairly with her concerns, was found on its face, to be covered under the policy. However, the court held that because the Human Rights Tribunal could only award “compensation” as opposed to “damages”, the language of the policy did not provide for indemnity for same. Nor did the policy provide a duty to defend Dr. Neiman in the Human Rights proceedings.

The moral of Dr. Neiman’s story is this: while EPL insurance may be useful in some circumstances, it certainly can have its limits, depending on the particular policy wording. A insurance broker who is unfamiliar with employment law may not be aware of, or understand the limitations of this kind of insurance. Thus before you purchase this insurance, you may wish to consult legal counsel who is familiar with both employment and insurance law, for advice on what is and what not is covered.