By Michael Steele Commercial Insurance October 23, 2020

What You Need to Know About Employment Practices Liability Insurance

The US Equal Opportunity Employment Commission reports that during 2019, there were nearly 81,000 employment discrimination, retaliation, and sexual harassment claims filed against companies. In total, they spent hundreds of millions of dollars between administrative and legal costs.

What happens if a similar suit is brought against your business? Would you be covered under Employment Practices Liability Insurance? I’ll briefly cover the basics, how it compares to similar coverages, and whether or not its benefits might outweigh the costs.

How Does Employment Practices Liability Insurance Work?

Employees in the US are granted specific legal rights and if they’re violated, workers can litigate and could be entitled to restitution, depending on the court’s findings. But whether you win or lose, your business could face enormous expenses, which is where Employment Practices Liability Insurance (EPLI) enters the picture.

Some examples of the many types of lawsuits (third-party-over action, loss of consortium, dual-capacity, consequential bodily injury, etc.) EPLI can protect you and your business against include:

Breach of employment contract
Deprivation of career opportunity
Discrimination
Failure to employ or promote
Mismanagement of employee benefit plans
Negligent evaluation
Wrongful termination, discipline, or infliction of emotional distress

Some insurance companies might offer EPLI as an endorsement (aka, rider) to an existing Business Owner Policy (BOP) or a general liability policy.

Either way, carriers usually write EPLI coverage on a claims-made basis, which means the incident must have occurred when your policy was active, unless you purchased an endorsement that extends coverage beyond the end of the policy period. This is important to emphasize, as employees frequently file EPLI lawsuits months—or even years—after the alleged occurrence.

Are There Common Employment Practices Liability Insurance Exclusions?

Most EPLI excludes coverage for:

Bodily injury
Punitive damages
Civil or criminal fines
Workers compensation (more next)
Contractual liability
Breach or violation of employment laws
Criminal and fraudulent acts
Punitive or exemplary damages
Strikes and lockouts
Unpaid overtime or other earnings

Per the Insurance Information Institute, EPLI also excludes “violations of the National Labor Relations Act, the Worker Adjustment and Retraining Notification Act, Occupational Safety and Health Act (OSHA), and the Employee Retirement Income Security Act (ERISA).”

However, keep in mind that some companies allow you to endorse one or more of these coverages onto your EPLI, such as emotional distress and mental anguish as part of bodily injury.

Employment Practices Liability vs. Employer’s Liability vs. Workers’ Comp

Employment Practices Liability Insurance

We’ve already discussed EPLI in detail, which is designed to pay for workers’ rights-related lawsuits, such as discrimination or harassment based on race, color, religion, national origin, sex, pregnancy, disability, bankruptcy, poor credit rating, or age, for those who are 40 or older.

Worker’s Compensation Insurance

Comparatively, worker’s compensation insurance pays restitution to your employees if they’re injured or fall ill, which is caused by their work-related duties. This includes lost wages, vocational rehabilitation to get them back to work as quickly as possible, and death benefits, such as funeral expenses.

Employer’s Liability Insurance

Employer’s liability coverage is typically part of workers’ compensation (except in North Dakota, Ohio, Washington, and Wyoming), and specifically protects the business owner if they’re blamed for an employee’s illness or injury.

Bringing it All Together

Here’s the bottom line:

Employer’s liability = lawsuits over employee injuries
Employment Practices Liability Insurance (EPLI) = lawsuits related to employment practices
Workers’ Comp = workers’ rights-related occurrences

Is Employment Practices Liability Coverage Expensive?

Like any other type of insurance, how much you pay for EPLI will depend on a variety of factors, including:

Your business’s industry
The number of people you employ (including employee turnover)
Prior lawsuits against your business, if any, especially those related to employment practices
Your established rules and best practices, if any

Some companies even provide EPLI policyholders with tools to help prevent an employment practices claim in the first place, including online training for sensitive topics like sexual harassment and wrongful termination, employment practices trends, and employee handbooks.

How Can We Help with Your Employment Practices Liability Coverage?

Although large corporations often make headlines during EPLI-related settlements, the reality is that small and new businesses—who typically lack the resources to adequately defend themselves—are most vulnerable to these types of claims.

To help reduce your risks, the Insurance Information Institute recommends establishing clear workplace policies, educating management and employees, hiring carefully, providing clear job descriptions, performing regular employee reviews, and maintaining written records of all employment related practices, complaints, and investigations.

Once all of this is in place, the professionals at IHS Insurance Group have decades of combined experience helping businesses like yours find the Employment Practices Liability Insurance they need, and at prices that won’t break the bank.

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