Being sued by a current or former employee can create serious financial pressure for a California business. Between attorney fees, court costs, and the time required to respond to allegations, even a lawsuit that is unsuccessful can become expensive.
Many business owners assume their insurance company will cover these expenses. However, when an insurer refuses to pay for an employment defense attorney, employers may be left wondering whether they can legally challenge that decision.
Does Business Insurance Cover Employment Lawsuits?
Not every business insurance policy covers employment-related claims. However, Employment Practices Liability Insurance (EPLI) is designed to address certain workplace-related allegations, which may include:
- Wrongful termination
- Workplace discrimination
- Sexual harassment
- Retaliation
- Certain employment-related defamation claims
- Other covered workplace misconduct
Coverage depends on the specific policy, endorsements, exclusions, and circumstances surrounding the allegations. Employers should review their policies carefully rather than assuming every employment lawsuit is automatically covered.
Can You Legally Require Your Insurance Company to Pay for Your Attorney?
California law recognizes an insurer's duty to defend when a covered claim, or potentially covered claim, arises under the applicable policy.
These decisions usually concern liability insurance policies with a duty to defend. EPLI policies may contain different provisions, including defense-cost reimbursement arrangements.
If your insurer improperly refuses to provide a defense, you may have legal rights to challenge the denial through negotiations or legal proceedings. However, whether an insurance company must pay for your attorney depends on the insurance contract and applicable law.
What If Your Insurance Company Refuses to Pay Legal Fees?
An insurance denial does not necessarily mean the insurer's decision is legally justified. Insurance companies may deny employment defense coverage for several reasons, including:
- The insurer believes the allegations fall outside the policy.
- The policy contains exclusions for certain employment practices.
- The employer allegedly failed to provide timely notice.
- The claim arose before the applicable coverage period.
- The employer hired an attorney without obtaining required insurer approval.
When an insurer refuses to pay legal fees, request a written explanation identifying the relevant policy provisions. California Insurance Code Section 790.03(h) addresses certain unfair claims settlement practices, including misrepresentations and failures to reasonably investigate claims.
Although this statute does not create a general private lawsuit for damages based solely on its violation, the insurer's behavior may be important to examine for other available legal remedies. Employers should also preserve all correspondence, denial letters, insurance documents, and invoices for legal expenses.
Can You Choose Your Own Employment Defense Attorney?
Whether the employer can choose independent counsel depends on the policy and circumstances. Under California Civil Code Section 2860, an insured may be entitled to independent counsel when a qualifying conflict of interest exists between the insurer and policyholder.
An employer seeking to retain an employment defense attorney in Los Angeles, Glendale, or Pasadena should review the policy's defense provisions before independently retaining counsel at the insurer's expense.
What Happens If the Insurer Breaches Its Duty to Defend?
California recognizes that insurers must act in good faith when handling covered claims. Depending on the circumstances, an employer may pursue remedies involving the following listed below.
- Reimbursement of reasonable defense expenses
- Contract damages resulting from a wrongful denial
- Certain consequential damages
- Additional remedies when the legal requirements for insurance bad faith are established
The outcome of these remedies usually depends on the policy, the insurer's conduct, and the evidence supporting the claim.
Frequently Asked Questions
Does EPLI automatically pay for my employment defense attorney?
EPLI coverage depends on the policy terms, covered allegations, exclusions, deductibles, retentions, and defense arrangements.
Can my insurance company refuse to defend a wrongful termination lawsuit?
Yes, if the policy does not provide coverage or an applicable exclusion eliminates the duty to defend.
Can I hire my own attorney and send the insurance company the bill?
Some policies require insurer approval or provide for insurer-selected counsel. California law may permit independent counsel in qualifying conflict-of-interest situations.
Can I sue my insurance company for refusing to cover my legal defense?
Potentially. Depending on the circumstances, an employer may pursue a breach-of-contract claim, declaratory relief, or an insurance bad-faith claim. An attorney can evaluate which remedies may be available.
Legal Guidance: Steps California Employers Should Take
If your insurance company refuses to fund an employment lawsuit defense, consider obtaining the help of a legal professional to assist you throughout the entire process. Oftentimes, these types of situations may be difficult for many individuals to understand. Employers should avoid assuming that an insurance appeal automatically extends court deadlines.
How KAASS LAW Can Help
At KAASS LAW, our attorneys may help California businesses with legal concerns involving employment disputes, contractual obligations, and related litigation matters. The availability of insurance coverage and legal remedies depends on the individual circumstances, policy language, and applicable law. Businesses in Los Angeles, Glendale, Pasadena, and surrounding Southern California communities can contact KAASS LAW to discuss their circumstances and determine whether legal representation may be appropriate. Schedule a consultation with our attorneys today to learn more about your employment-related legal concerns.