Employment Practices Liability Insurance

A Comprehensive Guide to EPLI

What is employment practices liability insurance?

Employment practices liability insurance (EPLI) is a type of professional liability insurance for employers. This policy protects employers against claims made by employees on the basis of: 

  1. Discrimination 
  2. Wrongful termination 
  3. Sexual harassment 
  4. Retaliation 
  5. Workplace harassment 
  6. Breach of contract 

What are the coverages of Employment Practices Liability Insurance?

The risk of an employer begins right from the hiring process for a long period. Firstly, your employee could file a case for workplace harassment or discrimination while at the job. Secondly,  an employee can file a case of wrongful termination against you while leaving. For example, FindLaw states that about 75 percent of all lawsuits against businesses involve employment cases. As a result,the average defense cost of such a case is more than $250,000. 

Many people believe that only big firms are at the risk of an employee lawsuit. However, this is true only to some level. Large firms do have many employees, but they also have a unit handling the employees.Many big firms also have employee handbooks to state rules . Therefore,they know the laws and how to manage charges. It is still necessary for large firms to have insurance to be fully safe from losses. 

On the other hand, smaller firms are at higher risks of cases. Also, small firms do not have a  human resources department.In short,lack of proper guidance exposes them to employee-related lawsuits.  

Therefore, having an EPLI and taking precautions can save companies from huge losses. Depending on the scale of the organization, you can add EPL  to your business owners policy.   

The risks that EPLI covers are:

1. Discrimination:  

Discrimination among employees in the workplace is a criminal offense. U.S. Equal Employment Opportunity Commission (EEOC) has passed seven different federal laws against discrimination. On the other hand, a report by EEOC shows that 72675 charges of workplace discrimination came up in 2019.  

These high numbers of discrimination cases show the importance of Employment practices liability insurance for businesses. The law applies to companies with more than 15 employees. EPLI will pay for in-court and out-of-court settlement of such cases. To clarify, the coverage includes discrimination based on: 

  • Race
  • Sex
  • National origin
  • Religion
  • Color
  • Age
  • Disability

For instance, if an employee files a lawsuit related to unequal pay , EPLI will cover your expenses.

2. Retaliation:

Retaliation is when you take wrong actions against an employee for their actions . For example, an employee disagrees with you, and you fire him, it is retaliation. Above all, such cases can cost you a huge amount as fine.

3. Wrongful termination:

Wrongful termination is when an employee is terminated wrongly. For example, an employee gets injured during business operations and cannot work for a month. If the organization fires the employee, it is wrongful termination. EPL will provide coverage for such cases.

4. Sexual harassment:

Sexual harassment is a national issue, and its awareness is on the rise. Statista shows that 42% of women and 11% of men have suffered from sexual harassment in 2017. Co-ed working spaces increase the risk of such cases. Overall, EPLI protects against any likely lawsuits that arise from sexual harassment in the workplace. 

5. Workplace harassment:

Department of Labor (DOL) states that workplace harassment in any form is punishable under federal law. No employees can harass another employee based on race, color, religion, sex, national origin, age, disability, genetic information, sexual orientation, or parental status.   

For example, you can sue an organization for over-exploitation of employees. EPL covers losses posed by such risks.

6. Breach of contract:

Violation of the terms of the employment contract is also a legal offenseAll employers and employees have to sign an employment contract while starting a job. Breach of contract is when any one of the parties fail to abide by the terms of the contract. EPLcovers losses arising from breach of contract cases. 

For example, if the agreement states a 5% increment in salary every year, but the employer increases only 3%, it is a breach of contract. EPLI covers such settlements.

7. Defense coverage:

Most of the EPLI policies include defense coverage. This coverage is of two types: ‘duty to defend’ and ‘non-duty to defend.’ In the case of duty to defend, the insurer has to choose your lawyer, fight your case, and pay your fines. When there is the ‘no duty to defend’ case, you choose your lawyer and fight your case. The insurer only pays for the defense costs. You can select the type of defense coverage as per your need.

Some other coverages of EPLI are:

  • Defamation cases
  • Negligent HR decisions
  • Negligent supervision or appraisal processes

EPLI is usually written on a claim-made basis. This means that the policy only pays for the claims made in the coverage period. If an incident happened in the coverage period, but the claim request was made later, the policy will not cover the losses.  

In such cases, a tail policy can be helpful. A tail policy will cover the additional losses after the coverage period. Tail coverage is liability insurance that extends beyond the time of the primary coverage.  

Also, Employment Practices Liability Insurance coverage usually comes with ‘consent-to-settle’ and ‘hammer’ clauses. When there is a consent-to-settle clause, the carrier needs your consent to settle claims. Hammer clause comes in effect if you do not want settlement by the insurer. Your carrier will give you a fixed amount of money to cover your losses.

Do you want the best employment practices liability insurance for your business? Get a quote for a policy today!

Common exclusions and endorsements of Employment Practices Liability Insurance

The standard exclusions of EPLI are: 

  • Bodily injury (BI): EPLI does not cover bodily injury. It covers only cases related to bullying and lack of proper rest . 
  • Property damage: EPL does not cover damage to properties.  
  • Penalties and fines: It does not cover penalties, , and criminal fines. 
  • Criminal activities: If an employer is involved in any kind of illegal activity, EPLI does not provide coverage. 
  • Contractual liability: EPLI does not cover any kind of loss arising from a commitment to an employee, as mentioned in the contract.  
  • Punitive damages: Covering punitive damages is prohibited by law in some states.  Legal Information Institute states that the court gives a verdict of punitive damage in only about 5% of its judgments. 
  • Strikes or lockouts: EPLI does not cover costs due to strikes or lockouts by employees.  
  • Violation of laws: EPLI does not cover the breach of laws. As per the Insurance Information Institutethe regulations that employers have to abide by are: 

1. National Labor Relations Act: This act protects the rights of laborers to form a union and collectively bargain with their employers. 

2. Worker Adjustment and Retraining Notification Act: This act states that an employer must provide a 60-day advance notice if they lay off more than 50 employees at a time.   

3. Occupational Safety and Health Act (OSHA): OSHA protects the right to safety and health care services of employees while at duty. 

4. Employee Retirement Income Security Act (ERISA): ERISA gives out guidelines for retirement, health, and pension plans. 

5. Workers’ compensation laws: EPLI does not cover coverages when an employer underpays employees. 

6. Consolidated Omnibus Budget Reconciliation Act (COBRA): COBRA allows employees to get health insurance coverage for some time after leaving the organization.  

A standard endorsement to EPLI is: 

Third-party coverage : It is coverage against the laws suits of discrimination filed by third-parties such as customers or suppliers. If your employees face the customers directly, this coverage is important. Third-party coverage is not a standard coverage. However, you can add it later on.  

Types of insurance that include employment practices liability policy 

Do you want the best employment practices liability insurance for your business? Get a quote for a policy designed for you today! 

Factors that determine the cost of employment practices liability insurance

The cost of EPLI coverage is different for each business. Different insurers have different policies and different quotes. Some factors that determine the employment practices liability insurance cost are: 

1. Number of employees: There are limits to the number of employees that can be covered under one coverage. Having more employees increases your risks and defense costs. Therefore, the cost of the premium is bound to be higher.

2. History of lawsuits or employment issues of the employer: Insurance carriers look at the history of employers to calculate their risks before planning policies. The price will be higher if claims including employment cases were frequent in the history. 

3. Employee turnover rate: Employee turnover rate indicates the level of risk of new recruits in an organization.  Higher employee turnover rate is also an indicator of dissatisfaction among employees. Therefore, premium rate will be higher if the employees are changing frequently.

Some common employment related lawsuits

As per the National Law Reviewsome of the common cases of employment practices liability coverage are:

1. Medical marijuana use: The New York City Council passed a law that will stop employers from testing medical marijuana. EPLwill cover losses from cases related to use of medical marijuana. 

2. Sexual harassment lawsuits: The rise of the ‘me-too movement’ is bringing up more chances of sexual harassment charges. The EEOC recovered approximately $70 million in 2018 from sexual harassment claims. 

3. Whistleblower claims: Whistleblower claims filed by employees have resulted in more than $1 billion losses to employers, according to the Securities and Exchange Commission. 

4. Website accessibility lawsuits: If websites are not accessible to specially-abled people, it is a violation of the law in some states.  Therefore, these lawsuits are also on the rise. These types of claims are covered under third party coverage.  

All these claims are a few examples of lawsuits that an employee can file against you. Hence, it is wise to have EPLI insurance coverage in all cases. Overall, EPLI insurance allows employers to transfer their risks and focus on the growth and development of the firm.

FAQs

Do small businesses need EPL coverage?

Purchasing an EPLI policy is a wise move for every business. Small businesses generally do not have a department dedicated to employment-related issues. Also, almost 50% of employment lawsuits are from small businesses. Therefore, they are more vulnerable to employment lawsuits. Hence, small businesses need EPLI insurance coverage for protection.

Does EPLI cover loss due to punitive damages?

EPLI is one of the rare policies that cover punitive damages. However, there are some states which do not permit to insure losses due to punitive damages. Therefore, employment practices liability coverage has a clause stating that all losses must be insurable by law to be covered. Overall,EPLI does cover punitive damage losses but is dependent on state laws.

How is employee count calculated for EPLI insurance coverage?

Employee count includes all full time and part-time employees. While each carrier has different regulations, the rule is to count each part-time employee as half. For example, four part-time employees will be two employees in the employee count.

What are the average costs that employers face due to employee lawsuits?

The estimation of costs of employee lawsuits as per Patch are: 

  • Out of court settlements: $15,000
  • Case dismissal: $50,000 to $75,000
  • Trial case: $125,000 or more

These are estimated costs, and the actual cost may be more or less depending on the case.

Do you want the best employment practices liability insurance for your business? Get a quote for a policy designed for you today!