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downsizing exclusion

A downsizing exclusion is an exclusion sometimes found within employment practices liability insurance policies that precludes coverage for claims resulting from large-scale layoffs within the insured organization.

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There are two rationales underlying downsizing exclusions. The decision to terminate a significant portion of its workforce is largely within an insured organization's control, and insurers could be faced with catastrophic losses in the absence of the exclusion. Downsizing exclusions are no longer common. Instead of excluding this exposure, as was once standard practice, underwriters currently surcharge firms they perceive as having a significant downsizing exposure. In other instances, underwriters impose special, higher deductibles/retentions for downsizing claims.