Employment Practices Liability Insurance (EPLI)

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In the lifetime of a company, decisions get made that will affect its employees.

While certain management processes such as disciplining, firing or deciding not to promote a worker may seem fair to executives and decision-makers, some personnel may not see it the same way.

If an employee decides to take legal action, the consequences could be devastating — in capital, resources and goodwill — for your company, even if you end up winning in court.

That’s why we’d like to introduce you to EPLI, the insurance that protects your company, staff and customers from potential employment-related lawsuits.

Read on to understand if this insurance is right for your business.

What Employment Practices Liability Insurance (EPLI) Is All About:

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What Is Employment Practices Liability Insurance Coverage?

EPLI is insurance that gives companies coverage against employment-related lawsuits such as claims of harassment, wrongful termination, breach of contract, discrimination or other work-related issues. Such lawsuits are increasingly common in today's business environment. The most common claims filed are for retaliation, sexual harassment, discrimination and wrongful termination.

Many large corporations are well protected by substantial coverage and can deal with nearly any type of employment-related lawsuit. Unfortunately, new and/or small businesses can be highly vulnerable to this type of claim. Many of these businesses lack an employee handbook or a legal department that can advise on proper procedures to follow regarding terminating, disciplining and hiring employees.

What Does Employment Practices Liability Insurance Cover?

Getting Into the Details…

Retaliation

Taking a negative action toward a person in response to a protected action or a decision they've made. Example: If you fire an employee for telling a government agency about illegal activity at your company.

Defamation

Committing libel or slander against a person. Example: If you call a contractor a thief in front of others without evidence.

Negligent HR decisions

Making improper or illegal decisions regarding a person's compensation, promotion or hiring. For example: If you hire an unqualified job applicant because they're the boss' daughter

Negligent evaluation

Giving a person an inaccurate, unfairly low or excessively negative performance evaluation. For Example: If you make up a false incident report about an employee on a review

Negligent supervision

Failing to supervise people or supervising them ineffectively. For example: If you leave contractors unsupervised, and one starts a fire

Who Is Covered by Employment Practices Liability Insurance?

  • Your Business and Employees

Do I Need Employment Practices Liability Insurance?

Employment Practices Liability Insurance comes in handy if your business:

  • Hires, promotes, demotes or fires employees or contractors
  • Evaluates employees or contractors
  • Offers raises to employees or contractors
  • Supervises employees or contractors
  • Scrutinizes the communications of employees or contractors
  • Communicates to or about employees or contractors
  • Creates an environment where possible employee or contractor harassment could occur
  • Manages benefits for employees or contractors

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What Are the “Limits” on an Employment Practices Liability Insurance Policy?

EPLI policies are usually limited to between $1 million and $25 million in total coverage — you can choose how much coverage you need. Settlements, judgments and legal defense costs are typically included in policies' aggregate limits. Some policies have limits on claims related to immigration. Certain policies limit their coverage during staff reductions, mergers and acquisitions. Businesses should carefully consider worst-case scenarios for their type of business and industry before selecting a policy.

Certain policies specify that when claims are filed, the insurance company will choose an attorney to defend the insured firm. These attorneys are typically chosen based on their relevant expertise to the type of claim that's filed. Note that legal fees can make up a large portion of Employment Practices Liability Insurance benefits. If your company prefers to work with specific attorneys, you should make sure that the policy you have in mind permits you to do so; some policies may be amended to enable this.

Most EPLI policies are provided on a "claims-made" basis, meaning that claims will only be covered when both the incident in question and any claims related to it occur while a policy is active. This means that even if an incident took place while a policy was in effect, if a claim related to it is filed after the policy in question expires, that claim is not covered under the policy. In some cases, the end date for certain policies may be extendable.

In addition to that...

EPLI policies reimburse your company for the costs of defending against lawsuits and for settlements and judgments. Legal costs are covered, regardless of whether your company loses or wins its case, as long as the act is not against the law. Companies, officers and directors, employees and management personnel are all covered under most policies.

Policies will vary, but it helps to learn more about how Employment Practices Liability Insurance works and what's covered under it (and what isn't). It's important to know both what you need insurance-wise and what a policy you're considering really offers.

You’ll Know It’s the Right Policy If It Covers:

  • Retaliation
  • Defamation
  • Negligent decisions regarding compensation, promotions or hiring
  • Negligent evaluation
  • Negligent supervision of employees
  • Infliction of mental or emotional distress
  • Invasion of privacy
  • Discrimination based on race, religion, sex, disability, age, equal pay, national origin, genetic information or pregnancy
  • Wrongful demotion or disciplining of an employee
  • Wrongful termination of an employee or implied contractor
  • Sexual harassment
  • Mismanagement of employee benefits
  • Deprivation of opportunity

Some policies include meetings with a specified law firm for a company to stay abreast of new trends in employment practices law and liabilities.

What Does Employment Practices Liability Insurance Not Cover?

  • Penalties and Fines

  • Claims of bodily injury

  • Claims

  • Property Damage

  • Actions that occurred outside of the US

How Much Does Employment Practices Liability Insurance Cost?

Costs for Employment Practices Liability Insurance are determined based on many factors such as employee count, type of business, hiring and firing policies and any history of prior legal action against a firm. Depending on the state, EPLI coverage can cost $1,500 or less per year for $1M in liabiltiy coverage, if your business has 5 or less employees. Some states, California especially, are experiencing large rises in the cost of this insurance. It is all the more reason to consider coverage because the incidence of employment related lawsuits is rising ahead of the cost of insurance. An insurer must often confirm there are adequate personnel policies before providing an estimate for EPLI coverage.

Frequently Asked Questions

What Employment Practices Insurance is not

Sometimes when you hear the words Employment Practices it may be easy to assume that it has something to do with Workers Compensation. This is not the case. Employment Practices only covers your liability associated with claims by employees for discrimination, harassment, wrongful termination, etc. If your employees are injured and need lost wages, medical, or sue you for negligence, that is covered under Workers Compensation and Employer’s Liability.

What is 3rd party EPLI?

Third-party EPLI is available coverage that will reimburse your business for settlements, judgments, and defense costs associated with claims of discrimination and harassment. This is necessary if you meet with clients, vendors, or any third-party that frequents your business. An example would be if the mailman gets catcalled by an employee and sues the business.

Does EPLI cover wage and hour claims?

While most EPLI policies do not automatically cover wage and hour claims, such as failure to pay for overtime, it is usually available to add by endorsement. The wage and hour claim endorsement will have a separate sublimit from the EPLI limit, and only covers the defense costs associated with the claim, no judgments or settlements.

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