Employment Practices Liability (EPL) insurance policies cover employers and their employees from certain legal claims made by other employees. Last month, the First Circuit Court of Appeals reminded employers that exclusions in some EPL policies can leave their executives without coverage against claims brought against them in their personal capacity.

In Manganella v. Evanston Ins. Co., the employer and its president were sued by a former employee for sexual harassment. The president had sold the company to its then current owners, with a large amount paid into an escrow account. After investigation of the harassment claims, the new owners sought release back to them of the escrowed funds. An arbitrator found that the president had engaged in sexually inappropriate behavior. After the arbitration, the harassment victim filed suit against the president, and he in turn sought coverage under the company's EPL policy.

The First Circuit affirmed dismissal of the coverage claim. The court concluded that the EPL policy excluded willful, wanton and reckless conduct. The First Circuit stated that the prior arbitration determined that the president's conduct fell within this definition, and that he was precluded from relitigating that factual conclusion, even though the original hearing was not based on the exact EPL exclusion language.

Most discrimination, retaliation and harassment claims involve allegations of willful behavior. Where the claims involve harassment, the jury or other fact determiner is usually asked to decide whether the behavior in question was intentional. Employers that assume that their EPL policies provide coverage for the company and its managers should carefully review the policies' exclusions to make certain they apply as assumed.