Glossary

Settlement programs are operated by various government agencies, such as the US Internal Revenue Service and the US Department of Labor, for the purpose of resolving disputes without resorting to litigation. For example, employees and employers can voluntarily agree to settle claims pertaining to employee benefit programs using settlement programs. Accordingly, fiduciary liability insurance policies often contain specific policy provisions and separate, additional limits that apply to the resolution of claims using settlement programs. The purpose of this approach is to encourage resolution of claims under such programs because it is likely to reduce total indemnity and defense costs.

Settlor coverage is a type of coverage afforded by some fiduciary liability insurance policies, although only by endorsement, rather than within the terms of standard policy forms. A settlor is a person who, in administering employee benefit programs, acts with broad discretionary authority. In contrast, a fiduciary must act strictly in accordance with the provisions of the Employee Retirement Income Security Act (ERISA). Recognizing that settlor and fiduciary acts, while legally different, are nevertheless both closely related and functionally similar, a handful of insurers have responded to the fact that fiduciary liability policies do not cover the acts of settlors by offering endorsements to their policy forms that affirmatively cover settlor acts.

Severability of exclusions is a term stating that although an exclusion applies to one or more insured(s) under a policy, the exclusion does not necessarily apply and preclude coverage for the other insureds. Assume that a directors and officers liability policy excluding coverage for fraudulent and criminal acts also contains a severability provision that applies to the policy's exclusions. Under these circumstances, the fraudulent actions of one director would not bar coverage for other directors who were not a party to these fraudulent acts (that bar coverage for the director who committed them).

A severability of interests clause is a policy provision clarifying that, except with respect to the coverage limits, insurance applies to each insured as though a separate policy were issued to each. A policy containing such a clause will cover a claim made by one insured against another insured.

Several liability refers to liability that may be assigned or apportioned separately to each of a number of liable parties. This is distinguishable from, but often paired with, joint liability.

Severance pay is the sum of money that is paid to an employee at the time the employee is terminated or laid off. Employers are not legally required to make severance payments to a terminated employee. There are two exceptions to this rule. The first exception is when a terminated employee has an employment contract in place stating that the employee shall receive severance pay. (Such contracts typically specify the conditions under which severance will be paid as well as the amount to be received or the formula upon which the amount of severance pay will be computed.) The second exception is when a severance plan is specifically provided for within a company's human resources (HR) policies. One motivation for offering severance pay is as legal consideration for the employee's agreement not to sue an employer. Therefore, when an employer offers a severance payment, that offer should be contingent upon the employee signing an agreement waiving their right to sue the employer for wrongful termination and/or discrimination as a consequence of being laid off. If the employee refuses to sign such an agreement or, if after signing it, decides to rescind the agreement, the employer should not provide any severance payment.

Severance pay exception wording refers to an exception to the standard severance pay exclusion found within an employment practices liability insurance (EPLI) policy that otherwise precludes and thus covers severance payments when an employee is terminated. The rationale for the exclusion is that severance payments are business risks and not the result of a fortuitous occurrence. However, a few insurers will agree to modify this exclusion so that their EPLI policies will affirmatively cover such payments if, prior to terminating a given employee, the insured confers with the insurer and the insurer is given a chance to approve or disapprove the offer of severance pay. One important caveat applying to severance pay exception wording is that coverage for severance payments mandated by employment contracts does not apply. This is because the magnitude of severance payments called for in top executive employment contracts can run into millions of dollars.

Severity refers to the amount of damage that is (or that may be) inflicted by a loss or catastrophe. This is sometimes quantified as a severity rate, which is a ratio relating the amount of loss to values exposed to loss during a specified period.

The sexual abuse exclusion precludes coverage for claims alleging sexual abuse. However, favorable versions of this exclusion also state that coverage to defend against allegations of sexual abuse is provided.

Sexual harassment is conduct involving unwelcome sexual advances, requests for sexual favors, and verbal, visual, or physical conduct of a sexual nature. There are two types of sexual harassment: quid pro quo sexual harassment, in which sexual contact is made a condition of employment, and hostile environment sexual harassment, in which such conduct creates an intimidating, hostile, or offensive working environment. Lawsuits against businesses that allege sexual harassment have increased significantly during the past decade. Accordingly, around 1990 the insurance market began offering employment practices liability policies, a specialized form of insurance covering claims of sexual harassment as well as other employment-related torts.