Employment Practices Liability Insurance (EPLI)

Employment Practices Liability Insurance (EPLI)

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

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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 Is Employment Practices Liability Insurance?

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.

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 Does Employment Practices Liability Insurance Cover?

At a High Level...

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.

Getting Into the Details…

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.

Type of Claim Description Example
Retaliation Taking a negative action toward a person in response to a protected action or a decision they've made If you fire an employee for telling a government agency about illegal activity at your company
Defamation Committing libel or slander against a person If you call a contractor a thief in front of others without evidence
Negligent decisions regarding compensation, promotions or hiring Making improper or illegal decisions regarding a person's compensation, promotion or hiring 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 If you make up a false incident report about an employee on a review
Negligent supervision of employees Failing to supervise people or supervising them ineffectively If you leave contractors unsupervised, and one starts a fire

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?

EPLI can ensure that you'll have the resources to defend your organization and protect your assets in case of employee claims and lawsuits. Most corporations in the U.S. have, at one point or another, had a claim made against them. However, not everything is covered under this policy.

Employment Practices Liability Insurance does not cover:

  • Penalties
  • Punitive damages (this can vary by state)
  • Civil fines
  • Criminal fines
  • Unpaid wages
  • Rest and meal times
  • Liabilities for acts of intentional or dishonest wrongdoing
  • Property damage
  • Claims of bodily injury
  • Bullying
  • Claims related to use of social media
  • Claims related to unemployment benefits
  • Claims related to workers' compensation
  • Claims related to The Consolidated Omnibus Reconciliation Act (COBRA)
  • Claims related to The Employee Retirement Income Security Act (ERISA)
  • Claims related to The Worker Adjustment and Retraining Notification Act (WARN)
  • Claims related to The National Labor Relations Act (NLRA)
  • Actions that occurred outside of the United States.

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.

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.

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