Do You Need Employment Practices Liability Insurance?

As employment related claims continue to rise, businesses must evaluate all available options to attempt to mitigate costs and risks associated with these claims.  One common way to address these issues is to obtain an Employment Practices Liability Insurance policy, commonly referred to as EPLI.

This post provides a brief overview of the purpose of EPLI coverage and the potential advantages to obtaining an EPLI policy.

What is EPLI?

EPLI policies provide businesses with coverage against claims for many employment based causes of action that are generally not covered under a standard Commercial General Liability policy.  Although there is no uniform EPLI policy, EPLI policies generally cover claims for alleged:

-Discrimination (based on a host of protected classes);

-Sexual harassment;

-Wrongful termination;

-Failure to promote;

-Defamation;

-Negligent evaluation; and

-Invasion of privacy.

Some polices will also cover claims for retaliation taken against employees for purportedly exercising their protected rights and breach of employment contracts.  In many instances, even if these claims are excluded from coverage, a business will still receive a defense in connection with the claims as they are generally asserted in connect with one or more of the above-referenced causes of action covered under the policy.

Pros to Obtaining an EPLI Policy.

1. For a relatively inexpensive premium with a limited deductible, most small and medium-sized business can obtain $1 million in coverage.  This coverage will cover not only potential liability and settlement costs, but also the costs to obtain an attorney to defend against the claims.
2. Most insurance carriers maintain a list of attorneys in all major metro areas to provide insureds quick and useful guidance.  The attorneys listed on a carrier's panel counsel normally have significant experience defending against employment related claims and will often work at reduced rates compared to other large law firms.  This provides companies with access to experienced attorneys at a lower cost and can frequently result in significant savings.
3. Insurance carriers obviously want to reduce claims in order to lower their costs.  Many carriers offering EPLI policies provide companies with access to claims professionals and other human resources professionals for advice on how to handle certain common employment situations in an effort to prevent future claims.  This is a great benefit for a company's human resources team, especially if your organization runs lean and has relatively limited administrative staff.
4. Attorneys and adjusters familiar with defending employment claims also have significant knowledge related to how to properly evaluate appropriate settlement authority and/or the cost of going to trial in connection with a claim.  This can assist a business in not over-paying on a claim, setting unfavorable precedent, thereby, incentivizing future claims and evaluating whether it makes business sense to take a case all the way to trial.

EPLI Policy Limitations.

While EPLI policies cover a wide breadth of employment based claims, they do not cover all employment related claims.  EPLI policies generally do not cover:

- Wage/hour and overtime claims (e.g., claims filed under the FLSA);

-OSHA violations;

-Violations of securities laws (e.g., Sarbanes-Oxley);

-ERISA violations;

-Collective bargaining related activities under the National Labor Relations Act (NLRA);

-WARN Act claims; and

-Violations of non-compete and confidentiality agreements.

Furthermore, EPLI policies generally do not cover civil fines, penalties or punitive damages.

Takeaway.

An EPLI policy can offer significant advantages in protecting against employment claims, especially for small and medium-sized businesses with limited human resources staff. This year when you begin the annual insurance renewal process, consider asking your insurance broker about available EPLI options. Many major insurance carriers provide policies at relatively economical rates.  It could be a cost saver or, at a minimum, help your legal and human resources departments sleep easier at night.