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Severance Pay Exception Wording

Severance Pay Exception Wording

Definition

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.

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