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Managing Employment-Related Lawsuits Due to COVID-19

The effects of the COVID-19 pandemic will be severe. Unemployment rates are rising as businesses make workforce reductions or even close their doors. All of this can lead to a rise in employee lawsuits. Therefore, it is critical for companies to understand now how their existing insurance policies may, or may not, cover them during this time.

In the short-term, there could be a rise in workers’ compensation claims by employees claiming they can’t work due to an illness that was contracted as a result of work-related travel or from an infected individual in the workplace. Taking a longer view, employees that lose their jobs may take legal action.

Employment Practices Liability Insurance, or EPLI, helps to protect employers from financial loss against non-bodily injury claims by individuals such as those made during the employment process, discrimination, harassment, or wrongful termination lawsuits. The COVID-19 circumstances may increase these traditional claims.

For questions or more information on how to protect yourself from fraud, please contact a member of Withum’s Tax Services Group.

Large organizations often are more often equipped with various forms of insurance coverage, including EPLI, and in many cases have their own legal departments to assist. Not surprisingly, given the nature of the current economic shut-down, small businesses may be more at risk for employee lawsuits. What can businesses do now to maximize coverage for what they are likely to encounter in the near future?

  1. Carefully review existing insurance policies. Insurance policies can vary and what one policy covers, another might not. If your company utilizes a professional employer organization (PEO) or other outsourced payroll or benefits firm, carefully review the agreement with that organization to uncover any other potential sources of coverage.
  2. Carefully review and understand the definition of a “claim” under the policy. Certain timelines may need to be followed in order for a claim to be valid and timely filed.
  3. EPLI policies are “claims made policies,” meaning one of the criteria for coverage is that the claim is made during the policy period, not afterward. Businesses can protect themselves by providing notice to their insurance company if it anticipates a claim. Some insurers acted after the SARS viral outbreak to limit policy coverage and some insurers are currently drafting COVID-19 exclusions to add to renewal policies.
  4. Consult experienced advisors early on that can identify whether choice of law could become an issue. Meaningful differences exist among the laws of various jurisdictions and these differences in interpretation can affect the status of a claim.

This pandemic opens the door to many new types of employment claims. Businesses need to be proactive in protecting themselves.

Author: Tara Nicholson | tnicholson@withum.com

COVID-19 Resource Center

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