Aug 29, 2013

Overview of Employment Practices Liability Insurance (EPLI)

There were nearly 100,000 private sector workplace discrimination charges filed in 2012. These lawsuits range from age discrimination to sexual harassment and wrongful termination.

Legal costs to defend employment related claims can cost six figures and average settlements range between $250,000 and $750,000.

From a risk management perspective a small business owner or employer is far more likely to have an employment claim than a liability or property loss.


What is Employment Practices Liability Insurance?
Employment practices liability insurance or EPLI covers wrongful acts arising from the employment process. The most frequent types of claims covered in an EPLLI policy include:

  • Wrongful Termination
  • Discrimination
  • Sexual Harassment
  • Retaliation

EPLI policies also cover claims for other types of inappropriate workplace conduct including defamation, invasion of privacy, promotion issues and falsely limiting career opportunities. EPLI policies cover board members, executives, management, and employees.

If you're in a service business it's also wise to add 3rd party coverage, which protects the company if one of your managers or employees harasses a customer, vendor or other third party.

Most EPLI policies are written on a claims-made basis, which means they it will cover claims made in the period the policy is in force, but not after. So if something happens it's important to report to the insurance company immediately.

Legal costs to defend are included in the limit. So if you have a $1 million EPLI policy you have $1 million to pay for legal and settlement costs.


Examples
Employee - Bob, your sales director is great at his job. However, Bob likes to tell dirty jokes and gets flirty with female associates at company social events. Jan, one of your top sales reps just out of college, complains to HR about Bob's behavior. HR puts a note in Bob's file and addresses him. A few months later Bob has a few cocktails on a company trip and makes Jan feel uncomfortable again. Jan quits her job immediately and sues the company for harassment and unsafe work environment. The company pays an attorney $25,000 and settles out of court with Jan for $200,000. Your EPLI policy would pay $225,000.

3rd Party - You own a successful restaurant and have been hiring like crazy to keep up with demand. It's been hard to fully screen every new hire but because your business is growing so fast. One day out of the blue you get a letter from an attorney that describes how one of your waiters treated his client. The customer in question claims that your waiter suggested she not order a certain entrĂ©e because it contained too many fat calories for a girl her size. The customer is seeking $50,000 for distress. You immediately fire the waiter and he sues for wrongful termination in the amount of $250,000. The waiters claim is thrown out but legal fees were $50,000. Your EPLI policy will pay $50,000 to the customer and $50,000 for legal defense.


Conclusion
Even if you have great company culture with an experienced HR Director you can't predict or see what everyone in your organization is doing all the time. That's why employment practices liability insurance is a necessity for any company.


U.S. Equal Employment Opportunity Commission