Third-Party Employment Practices Liability Coverage
Definition
Third-Party Employment Practices Liability Coverage — a separate insuring agreement contained within employment practices liability
insurance (EPLI) policies that covers liability claims brought by nonemployees
(typically, customers, clients, and vendors) against employees of the insured
organization.
Third-party employment practices liability coverage is needed because coverage
for claims by nonemployees is not provided under commercial general liability
(CGL) policies. This is because CGL policies exclude coverage for harassment
and discrimination—the two causes of action most likely to be alleged in claims
by third parties.
Third-party employment practices liability coverage is most often provided
under Insuring Agreement B within EPLI policy forms and is subject to a limit
that is separate from the limit applicable to Insuring Agreement A (which
covers "traditional" employment practices liability claims brought by
employees against the insured company and/or other employees). On the other
hand, a substantial minority of insurers offers third-party employment
practices liability coverage by means of a separate endorsement, whose limit is
included within Insuring Agreement A of the policy.
A firm's exposure to third-party liability claims is driven largely by the
extent to which its operations involve contact with the public. For example, an
airline, which engages in frequent, intensive customer contact, has a much
greater exposure to third-party claims compared to a firm that manufactures
aircraft engines for sale to a handful of large industrial customers. Such
differences are reflected in the rates insurers charge for third-party
employment practices liability coverage.