EPLI Limits and Why You Need Enough

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Employment Practices Liability (EPLI) is a coverage that every business needs, but unfortunately not every business invests in it. Even if your business has the best human resources department with iron-clad rules and procedures, there is still a need for EPLI. Some family-owned businesses think they don’t need EPLI because families would never sue each other. Unfortunately, that is not true either. Actually, family-owned businesses have seen more claims than any other kind because of this way of thinking. Also, there may be times where a lawsuit is brought against your business even if you did nothing wrong. Nevertheless, you will still have to defend yourself.

There are everyday decisions that businesses like you have to make every day that directly affect your employees. When it comes to human resources practices, things like discrimination and harassment are at the forefront of issues causing EPLI claims. If an employee feels that you discriminated against them, they were sexually harassed, were not paid properly, were retaliated against, fired wrongfully, or you breached an employment contract, employees can surely come after you and your business holdings. The financial consequences could be huge and ultimately put you out of business.

Why You Need EPLI

In today’s day and age, claims are common in the Employment Practices Liability insurance sector. There is an abundance of reasons why your business should have EPLI and why your EPLI limits should be adequate. After all, you are protecting your business assets, as well as your reputation. Here are some examples of employment-related issues that could quickly turn into a lawsuit, causing financial harm to your business.

  • Wrongful Termination – You may have heard about a case where an employee of African American descent was fired because their hair was not done in a way that was acceptable to the appearance that the business wanted to portray. The employee who was fired sued the business and ended up winning a fairly decent-sized settlement based on race discrimination. While you may not ever fire someone for their hair, there is always a chance that a lawyer will go the route of race discrimination if they feel they have a better chance at winning the case for their client, i.e. your former employee.

  • Wage and Hour Disputes – While not as common as it used to be, wage discrimination does still happen where men are paid more than women in some instances, and yet both parties perform the same tasks. Most businesses have changed the way they pay employees and as such, use a salary grade to reduce these claims. However, more common now are claims of not being paid overtime. If an employee brings a lawsuit against you and you did not pay them overtime and you are found at fault, you will have to pay them for all of the overtime that was missed, plus any court costs you may accrue during this time. Because of the law change recently, these claims are becoming more and more common.

  • Sexual Harassment – Sexual harassment is a hot-button topic in the media right now, and therefore, people are more aware of when it is happening to themselves or others. And, harassment can happen between more than just fellow employees. Anyone who visits your premises can commit sexual harassment against your employees and because you are supposed to provide a safe working environment, you could be on the hook even if you or your employees were not the ones at fault.

  • Discrimination – Besides race as already mentioned, discrimination can happen to many different people for many different reasons. Luckily, discrimination is defined by the Equal Employment Opportunity Commission (EEOC). This makes it such that not just anyone can claim discrimination against you and win. It is important to learn what falls under the term of discrimination. Discrimination, according to the EEOC, includes age, sex, disability, equal pay, genetics, harassment, national origin, pregnancy, race, religion, retaliation and sexual harassment.

  • Defamation – You have to be careful when disciplining employees. For example, if you suspect that someone has stolen something from your business and you happen to call them a criminal in front of others, you could be looking at a defamation lawsuit.

  • Retaliation – Retaliation is a big issue and is often cited as the cause for someone bringing a lawsuit against a business after being fired. If an employee approaches management about a problem they are having with another employee and in turn, gets fired, this would be a case of retaliation. Even if an employee reports your business to an entity and you fire them, that could also be considered retaliation.

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Where to find EPLI Coverage

Most insurance carriers offer EPLI insurance coverage, or Employment Practices Liability insurance, in conjunction with Directors and Officers (D&O) Liability insurance. You can bundle both together in order to save money. Please keep in mind that these are two different coverages with two different purposes. However, it is important to note that if you don’t have a board of directors within your firm, then you are able to get a standalone EPLI insurance policy. CoverWallet offers EPLI and you are able to quote and purchase online, efficiently and easily. The best part about it is you can manage all of your insurance policies in one with our online platform.

Another place you might be able to find EPLI coverage is on a BOP, or Business Owner’s Policy. If you have a BOP, many insurance carriers will allow you to add EPLI as an endorsement. There is usually a limit as to how much coverage you can buy, so you will have to be in a low-risk industry and probably not have a ton of employees.

What EPLI Limits You Need

When it comes to what limits you may need, that depends on many factors. While there is no black and white answer, here are some things to consider when determining the limit of your Employment Practices Liability insurance.

  1. Salaries of Your Employees – Lawyers have to start somewhere when determining an amount to come after your business for after they are approached by a disgruntled employee. The first place they are going to look at is the salary of the employee, since the lost wages are what they are looking to replace. If the average salary of your regular employees is $50,000, then an EPLI limit of $150,000 may be sufficient, assuming you will only have one lawsuit at a time. An average salary of $150,000 would warrant at least a limit of $250,000, if not $500,000, on your policy.

  2. The Size of Your Business – Most businesses have the desire to grow, which is great from a profit and sustainability standpoint. Unfortunately, with more growth comes more exposure and risk, leading to more lawsuits. Also, the bigger your business, the more likely that multiple employees will be affected by the same incident, therefore possibly causing a multi-person lawsuit. If your company is particularly large, you could be looking at a class-action lawsuit. One employee may be awarded $25,000, but if there are five employees involved in the same lawsuit, then you could be looking at a settlement of $125,000. If your EPLI limit was set at a level of $100,000, then this means that you are paying $25,000 out of pocket.

  3. The Location of Your Business – States vary on their employment laws so if you are doing business in a state where the laws favor the employees, you might need a larger limit than if you were doing business in a state that favors the employer. You should also be aware of the types of lawyers surrounding the area in which you do business. There are many lawyers who specialize in one type of lawsuit, such as employment issues. If this is the case, it might be a good idea to carry a larger limit. It is important to remember that usually, the limit is going to include defense costs to include attorney fees and court costs. These alone can eat up a large portion of your limit.

It is also a good idea to do some research on your industry and its Employment Practices Liability related lawsuits. You can determine what types of lawsuits are often brought into your area and industry. You can not only then mitigate these risks, but also plan your insurance portfolio around said risks. Further, you should be able to find information on how much the average settlement was as well. This can help you determine the best limit to protect your business depending on your specific size, industry and individual needs.

How Much Does EPLI Insurance Cost

EPLI limits are just one factor that influences the cost of EPLI insurance. Of course, the higher the limit you need, the more premium you will pay. Do not let this deter you from having enough coverage though, because it can take just one lawsuit to shut down a business due to bankruptcy if you don’t have the right insurance. Some other things to keep in mind include:

  • Employee count – EPLI insurance is rated on the number of employees you have. That means if you continue to grow in size, the price of your Employment Practices Liability insurance policy will also increase since your risk has increased.

  • Industry – The type of business you operate is going to have an impact on your EPLI insurance cost. That is because certain industries are going to have a higher chance of claims than others.

  • Policies – You will need to have proper HR policies and procedures in place in order to get a good price on your EPLI policy. If you don’t have any, consult with an HR team to get them in place so that you can prove to the insurance company that you are willing to mitigate risk.

  • Claims history – Certainly, if your business has a history of EPLI claims, then you will end up paying more premium than a business who has had none. A claims history will show the insurance company that you don’t have the right HR procedures in place.

What's Next?

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