Employment Practices Liability Insurance

Finding the Right Employment Practices Liability Insurance

Because even the most responsible employers get sued.

Employment Practices Liability Insurance

In modern society, many people sue first and ask questions later. Unfortunately, as an employer, there's a good chance that eventually one of your own employees will sue your business. Employee lawsuits can be much more than just an inconvenience. They're expensive, distracting for your management team, and can quickly erode productivity and employee morale. 

Employee lawsuits are also becoming more common, which makes employment practices liability insurance (EPLI) a necessity for businesses large and small. Fortunately independent insurance agents can help you find the best EPLI in your area. But first, here's a deep dive into this crucial coverage.

Over the last 20 years, employee lawsuits have risen roughly 400%, with wrongful termination suits jumping up more than 260%. Oddly enough, you're more likely to be sued by an employee today than you are to have a fire at your business.

And it’s not just large corporations that are being hit. Roughly 41.5% of employee lawsuits are brought against private companies with less than 100 employees. 

The financial damage of employee lawsuits can be dramatic. The cost of settling out of court averages $75,000, and the average jury award hits $217,000 if you go to court and lose the case.

It’s not just wrongful termination that can end in a lawsuit, your business can be sued for many reasons. Despite all of these scary numbers, roughly 7 out of 10 businesses don’t carry EPLI insurance. This can be an extremely costly mistake, in more ways than one.

What Is Employment Practices Liability Insurance?

Employment practices liability insurance, commonly referred to as EPLI insurance, is specifically designed to protect employers from lawsuits brought by employees. It provides coverage for many situations that general liability insurance does not. Even lawsuits that are thrown out of court or are won by your company are expensive, due to the high cost of securing legal defense. Having EPLI coverage is critical to provide financial protection for your business.

Coverage can protect your business against various lawsuits, ranging from harassment to discrimination. These types of claims are becoming more prevalent in today's business world. Fortunately an independent insurance agent can easily help you find the appropriate EPLI coverage for your unique business's needs.

What Does Employment Practices Liability Insurance Cover?

Your business may not be able to sustain a lengthy legal battle without the proper commercial coverage. EPLI will help pay for your court, settlement, and defense costs. EPLI coverage can be purchased as a stand-alone policy, but can also be found inside a management liability insurance package. These packages combine EPLI coverage with directors and officers liability and fiduciary liability insurance.

Stand-alone EPLI provides coverage for legal expenses arising from the following claims:

  • Sexual harassment
  • Wrongful termination
  • Breach of an employment contract
  • Discrimination
  • Negligent HR decisions
  • Inaccurate employee evaluations
  • Violation of local and federal employment laws
  • Infliction of emotional distress or mental anguish
  • Failure to employ or promote
  • Wrongful discipline or demotion
  • Mismanagement of employee benefits
  • Defamation of character
  • Privacy violations

An independent insurance agent can further explain the coverage provided by EPLI policies in your area.

What Doesn't Employment Practices Liability Insurance Cover?

If your company violates an industry-standard guideline from OSHA, a claim will be voided. The safer and more proactive your business operations, the better chance you have at avoiding lawsuits. As with any commercial insurance policy, there are exclusions. Some common EPLI coverage exclusions are:

  • Data breaches
  • Criminal fines
  • Unpaid employee wages
  • Bodily injury
  • Intentional malicious acts
  • Unemployment benefits
  • Workers' comp
  • Property damage

If you have further questions about which exclusions apply to your specific EPLI policy, an independent insurance agent can help you review your coverage.

Who Is Covered by Employment Practices Liability Insurance?

Your employees are covered against various claims under EPLI, as are you, the business owner. Directors and officers and management staff are also covered. Depending on your policy, your business may also be protected against claims filed by third parties. Your business needs to be equipped with this critical coverage before it ever opens its doors. Having the proper protection can mean the difference between success and failure.

Do I Need Employment Practices Liability Insurance?

Though coverage may not be required by law, it's really important to have it. Especially if your business does any of the following:

  • Hires employees
  • Performs evaluations for its employees
  • Promotes or fires employees
  • Distributes information about its employees
  • Allows employee interaction with other employees, customers, or other third parties
  • Provides employee benefits

Your independent insurance agent can provide you with even more examples of why having EPLI coverage is a good idea for your business.

When Do Small Businesses Need EPLI Coverage?

Basically, any time they have employees. EPLI covers legal costs if any employees claim their work environment was unfair, or that their civil rights were violated in some way. Even small businesses need protection against potentially costly employee lawsuits. When it comes to insurance, it's always better to be safe than sorry, and get set up with coverage from the very beginning.

Businesses without an HR team actually have more need for coverage than larger businesses. Without an HR team, your business may not be able to resolve employee complaints before they devolve into a lawsuit. An average of $160,000 can be spent by a small business to resolve a lawsuit that could otherwise be covered by EPLI protection.

What Are Typical Policy Limits on EPLI?

Often, EPLI comes with coverage limits between $1 and $25 million. Your business will have specific needs for coverage amounts, which you can discuss with your independent insurance agent at the time of purchase. Together, the two of you can select a policy with an appropriate coverage limit for your business and its specific risk level.

EPLI Coverage Is a Claims-Made Policy

This means EPLI claims will only be covered if the following criteria are met:

  • Your policy was active when the incident that inspired the claim occurred. 
  • Your policy is active when the claim gets filed.

If you don't have EPLI coverage anymore, such as for a business that's since closed, any residual claims will not be covered. If an employee sues you for harassment after your business has shut down and your policy has been canceled, your EPLI coverage will not apply. However, there are certain exceptions when you can extend your previous coverage.

How Much Does Employment Practices Liability Insurance Cost?

Carriers use personal data and outside elements to figure your costs. Like any other business insurance out there, pricing is customized to your policy's specifics. Employment practices liability premiums are often rated on the following factors:

  • Your experience level
  • The safety practices you have in place
  • If you have a human resources department
  • How you deal with hiring
  • How you deal with termination
  • Prior claims reported

An independent insurance agent can provide you with exact quotes for coverage available in your area.

The Top Trending Employment Practices Liability Claims

According to industry experts, unpaid internships, illegal background checks, and issues related to pregnancy and health are the top trending employment practices litigation cases. The cost of claims is rising, as is the length of time it takes to resolve EPLI claims. Average defense costs are about $300,000, and claim resolutions commonly take an average of between 18 and 24 months.

A closer look at the four most common types of claims:

Pregnancy discrimination:
The US Equal Employment Opportunity Commission (EEOC) made pregnancy-related discrimination one of its top six priorities in its latest Strategic Enforcement Plan. The Pregnancy Discrimination Act was put in place in 1964 and states that employers must allow pregnant employees to stay at their jobs as long they can continue to perform their duties. In addition, employers cannot hold pregnancy against a prospective new employee.
Illegal background checks:
Illegal background check lawsuits have also become much more common, according to industry experts. If you use background checks in your hiring process, the key to avoiding lawsuits is fully complying with the requirements of the Fair Credit Reporting Act and any relevant state laws. Background checks must be conducted across all hires, not just certain applicants. If your business pulls credit reports on potential hires, they must be notified in writing of the credit report request and that it will be used in your hiring decision. You must have written permission to request a credit report. One of the major issues is the concern that inaccurate information and errors on the credit report could affect the hiring decision.
Unpaid interns:
Parameters have been set by the Department of Labor that help companies determine whether an intern is or isn’t an employee. A couple of the factors are whether there is an educational component to the internship and whether their duties are similar to a current employee’s duties. In recent years there have been a number of class action suits and settlements related to intern programs. Experts advise that all internship programs and practices be reviewed to make sure they fall within true internship parameters. Make sure your programs have an educational component, interns are not doing work that is usually done by employees, and there are no promises of paid jobs at the end of the internship.
Genetic discrimination:
The Genetic Information Nondiscrimination Information Act (GINA) prohibits employers from using any genetic information in decisions related to employment and bans classifying employees based on genetic information or requesting any genetic information from employees. In order to avoid GINA lawsuits, verify that your hiring process doesn’t ask for family medical history information or any other genetic information from potential hires.

Not Having EPLI Insurance Can Cost Your Business

Lawsuits are not only expensive, they're also downright stressful. While claim resolution can take 18-24 months, a lawsuit could have an effect on your business for a lifetime. When it comes to expenses, the cost of a lawsuit can be daunting. According to the law firm of Murphy Austin Adams Schoenfield LLP, here are average court costs and legal fees in different scenarios:

  • Average court costs and legal fees when settled out of court: $10,000 to $50,000
  • Average court costs and legal fees when the case is dismissed: $10,000 to $15,000
  • Average court costs and legal fees when the case goes to trial: $150,000 to $200,000

The cost of EPLI insurance is a fraction of what you will pay if you end up on the losing side in a lawsuit. EPLI premiums will vary depending on a number of factors:

  • The number of employees
  • The amount of coverage purchased
  • Whether your company has anti-discrimination and anti-harassment human resource policies in place
  • Whether your company has had any EEOC complaints or lawsuits filed against it in the past

Employment practices liability insurance will easily pay for itself if you are sued even once. The best way to find out what EPLI will cost your company is to get quotes from a variety of insurers. Contact an independent insurance agent. These agents will work to find comprehensive coverage for your business.

Why Your Business May Not Be Covered

Don’t be fooled. Unless you have an EPLI policy, your business is not covered against employee lawsuits. According to an industry study, 6 out of 10 non-buyers of EPLI coverage mistakenly think they are protected under other policies.

If you are not carrying an EPLI policy, your business is not alone. A study done by Advisen found that only 23% of companies with fewer than 100 employees purchase EPLI insurance  That number is 34% for companies with 500-700 employees, and 40% for businesses that employ over 1,000 people.

Employment practices liability insurance provides compensation for losses caused by employee lawsuits. All court costs and legal fees are included in coverage.  EPLI insurance protects your business from the following and more:

  • Wrongful termination: Statistics show that this is the most common claim brought against employers. According to the EEOC, it is illegal to terminate an employee on the basis of age, race, national origin, gender, or disability. A business can also be sued if they fire an employee for:
    • Taking a leave of absence under the Family Medical and Leave Act (FMLA).
    • Reporting wrongdoing to the authorities under the Whistleblower Protection Act.
  • Harassment: In most harassment cases, the issue is sexual harassment, but cases of violence, bullying, and issues based on race, color, age, and religion all fall into this category. The harassers can be senior managers, supervisors, coworkers, agents of the employer, or even non-employees. If the employee can prove the company was aware of the issue and ignored it or did not take adequate steps to solve the problem, the business may face additional fines and penalties if the case makes it to trial. 
  • Discrimination: Discrimination cases involve employees who are turned down for employment or denied promotions or raises based on age, gender, race, national origin or disability. If an employee can show a trend of discrimination in your business, they may have a winning case on their hands.
  • Breach of contract: Violating the terms of an employee’s contract can result in a lawsuit against your company. Proof of damages to the employee due to the breach will often result in a victory for your former employee.
  • Emotional distress: If employees feel that your business is fostering a hostile environment, or if they are subjected to overly stressful situations in the workplace, they may sue. While these cases can be very difficult to prove, the legal fees for defending the case can be substantial.
  • Other violations: EPLI coverage doesn’t end with these types of claims. It offers protection for suits regarding statute violations, wage and hour violations, wrongful denial of workers’ compensation, loss of consortium, false positives from drug tests, libel and slander.

It's imperative to enlist the help of a trusted independent insurance agent to ensure your business gets the coverage it needs against these common employee claims and more.

Frequently Asked Questions about Employment Practices Liability Insurance

To determine how much EPLI coverage your specific business needs, you'll need to work with an independent insurance agent. The two of you will discuss your unique business's operations and risks, and from there, be able to pinpoint the exact amount of coverage necessary to protect you.

Employers liability insurance is similar to EPLI, but its scale is more limited. This coverage protects businesses against employee claims of injury or illness that stemmed from the business's negligence. Employer's liability insurance also covers legal fees, such as attorney, court, and settlement costs.

Of course, not having to deal with any employee lawsuits is the most ideal scenario. The more effort your business takes to prevent employee incidents from ever occurring in the first place, the less likely it'll be that you ever have to deal with a potentially costly and time-consuming claim.

Choosing the Right EPLI Insurance Policy

Businesses have different needs when it comes to EPLI coverage. Those needs will vary depending on the industry you operate in, the activities your employees perform, and the state (or states) where your business operates. Businesses in certain states are more likely to be sued than in others. According to Advisen, the top states for EPLI litigation are New York, California, Texas and Florida. Consulting an independent insurance agent is the best way to find an expert who specializes in your particular industry and location. 

The Benefits of an Independent Insurance Agent

Independent insurance agents are kind of like the Google of insurance quotes. You tell them what you’re looking for, and they bring in the results. And since they aren’t tied down to one carrier, they’re free to shop around and bring multiple policy options to the table. 

And it gets better. You don’t have to review the policy options alone. They’ll walk you through everything you need to know about finding the right coverage, and price, for you. 

But it doesn’t end with your signature. Along the way, if something bad ever happens, they’ll handle the entire claim process for you and deal with the carrier, so you can focus on your business.  

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TrustedChoice.com Article | Reviewed by Paul Martin

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