Coverage Corner

THIRD PARTY LIABILITY - Why Every Business Needs Employment Practices Liability Coverage

By Cathy Trischan

Imagine what your client who has no employees and no plans to hire any might say when you propose an Employment Practices Liability (EPL) Policy. The response would probably be something like “Why?! You’re just trying to sell me something I don’t need! How can I have a claim when I don’t have employees?”

What your client is not realizing is that businesses have Third Party Liability exposures that can be covered under an EPL policy. Here are a few examples:

▲ Your client, a bakery, is sued by a same-sex couple for discrimination after your client refuses to bake a cake for their upcoming wedding.

▲ Your client is accused of sexually harassing a customer during a sales call.

▲ Your client is accused of harassing a group of customers because of their race.

▲ Your client is accused of discrimination by a person in a wheelchair who is unable to access a building because the ramp that is required by law is not constructed with a wide enough landing.

In all four of these cases, the Commercial General Liability Policy (CGL), the policy your client first thinks of for liability claims, will not respond. The CGL covers claims for bodily injury, property damage, and personal and advertising injury liability. The claims in these four examples do not fit within these categories.

Third Party Liability is a coverage commonly included in an EPL policy. It is sometimes part of the same insuring agreement used to cover claims by prospective, current, and former employees. Some insurers include a separate insuring agreement for Third Party Liability.

When evaluating Third Party Liability coverage, there are two important questions to ask.

1. Who is a third party? AND

2. What claims are covered?

Ideally, a third party will be defined as anyone who is not an employee. Consider the difference in the following definitions.

SAMPLE LANGUAGE #1

Third-Party means any natural person who is a customer, vendor, service provider, or other business invitee of the Organization.

SAMPLE LANGUAGE #2

Third-Party shall mean any natural person(s) with whom an Insured, in their capacity as such, interacts. Third-Party shall not include Employees or an applicant for employment.

Let’s apply these definitions to a claim scenario:

Your client is a contracting company hired by Tara to do some work in her home. Tara’s friend, Julia, is there at the time the contractor’s employee, John, arrives. Julia alleges that John made inappropriate comments to her and sexually harassed her. She files suit against the contracting company and against John. With sample language #1, there is no coverage for this claim. Julia is not a customer, vendor, service provider, or other business invitee. She is a friend of a customer. With the second definition, coverage could apply as Julia meets the definition of a third-party.

As to what claims are covered, Third Party Liability coverage should apply to claims for discrimination and both sexual and non-sexual harassment. It is important to carefully read the policy language, before coverage is proposed, to see how broad the Third Party Liability coverage is.

One important Third Party Liability exposure for businesses is their website. Website accessibility claims are on the rise.

The Americans With Disabilities Act (ADA) is a federal law that prohibits discrimination against people with disabilities. The law applies to several areas, including employment, transportation, public accommodations, and others. ADA does not specifically reference websites, but many courts have ruled that websites are public accommodations subject to ADA.

A place of public accommodation engages in unlawful discrimination if it fails to “take such steps as may be necessary to ensure that no individual with a disability is excluded, denied services, segregated, or otherwise treated differently than other individuals because of the absence of auxiliary aids and services.”

Here is one example of a website accessibility suit:

In 2016, Guillermo Robles, who has a vision impairment, sued Domino’s Pizza, alleging that the Domino’s website and smartphone app were not accessible for people who use screen readers. While a district court initially dismissed the case, the Ninth Circuit Court of Appeals opined that the ADA does apply to websites. The Supreme Court of the United States denied a petition to have the case heard, and in 2022, Domino’s settled with Mr. Robles for an undisclosed sum.

There are web content accessibility guidelines (WCAG) that a business can follow to make web content more accessible to people with disabilities. Absent an exclusion, Third Party Liability coverage with a broad third-party definition and discrimination as a covered offense will typically apply to a website accessibility suit.

Employment Practices Liability Policies are not just for businesses with employees. Let’s make 2025 the year we talk to all our clients about this important coverage!

Til next time!

Cathy Trischan, CPCU, CRM, CIC, ARM, AU, AAI, CRIS, MLIS, TRIP is IA&B’s commercial lines education consultant. She works with our CIC and CISR programs, as well as our live CE webinars. Catch her at one of our upcoming courses: IABforME.com/education