Employment Practices Liability Insurance: A Comprehensive Guide
Employment practices liability insurance (EPLI) is a type of professional liability insurance designed especially for employers to protect them against claims made by employees alleging:
- Wrongful termination
- Sexual harassment
- Workplace harassment
- Breach of contract
In this blog
What Are the Coverages?
The risks of being an employer begin during the hiring process. First, you could face a case for failing to hire a candidate who was part of a protected class as listed under the American with Disabilities Act (ADA). Then, after being hired, an employee could file a case for workplace harassment or discrimination against you. Finally, upon termination, an employee can file a case of wrongful termination against you.
Therefore, investing in an EPLI policy can save your company from huge losses. Furthermore, employment cases are unusual in that typically the employer, if they lose a case, is required to pay for the employee’s legal fees as well. Depending on the scale of your company, you can, by all means, add EPLI to your business owners policy.
The risks that employment practices liability insurance covers are:
Discriminating against employees in the workplace is a criminal offense. The U.S. Equal Employment Opportunity Commission (EEOC) has passed seven different federal laws against discrimination.
An EEOC report shows that 67,448 charges of workplace discrimination were placed in 2020. The high number of discrimination cases shows the importance of EPLI for businesses since EPLI will pay for in-court and out-of-court settlements. The coverage includes discrimination based on:
- National origin
For instance, if an employee files a lawsuit related to unequal pay, EPLI will cover your expenses.
For instance, if an employee alleges discrimination or harassment and in revenge, their employer could take harmful action against them. For instance, if you fire, demote, or harass an employee for filing a discrimination claim, it is retaliation. Such cases can result in employers paying out for compensatory and punitive damages, not to mention the costs of legal representation.
Wrongful termination is when an employee is terminated unlawfully. Suppose an employee injures their shoulder at work and cannot work for a month. If the organization immediately fires the employee, then it is considered wrongful termination. Although it is difficult for employees to win wrongful termination claims, it still takes time and money for employers to defend themselves.
Sexual harassment is a national issue, and its awareness is on the rise. BBC reports that in April 2020, two McDonald’s employees from Florida sued the company for alleged systemic sexual harassment. Overall, EPLI protects against any lawsuits that arise from sexual harassment in the workplace.
Department of Labor (DOL) states that workplace harassment is punishable under federal law. No employee can harass another employee based on race, color, religion, sex, national origin, age, disability, genetic information, sexual orientation, or parental status.
Breach of contract
Violation of the terms of the employment contract is also a legal offense. All employers and employees must sign an employment contract while starting a job. Breach of contract is when any one of the parties fails to abide by the terms of the contract. EPLI covers you for lawsuits arising from breach of contract.
EPLI policies include defense coverage. This coverage is of two types: ‘duty to defend’ and ‘non-duty to defend.’ In case of duty to defend, the insurer has to choose your lawyer, fight your case, and pay your fines.
When there is the ‘no duty to defend’ case, you choose your lawyer and fight your case. The insurer only pays for the defense costs. You can select the type of defense coverage as per your needs.
Some other events that EPLI covers are:
- Defamation cases
- Negligent HR decisions
- Negligent supervision or appraisal processes
EPLI is usually written on a claims-made basis, which means that the policy only covers claims made while the policy is in effect and if the event in question occurred while the policy was in effect. If an incident happened in the coverage period, but the claim was made after the coverage period had ended, the policy will not cover the losses.
Henceforth, a tail policy can be helpful. A tail policy will cover losses after the coverage period and essentially extends the reporting period. If an incident happens during regular coverage and then is reported while a tail policy is in effect, the losses will be covered.
Also, EPLI coverage usually comes with ‘consent-to-settle’ and ‘hammer’ clauses. When there is a consent-to-settle clause, the carrier needs your consent to settle claims. The hammer clause comes in effect if you do not want to settle a claim but your insurer does. When this happens, your carrier will give you a fixed amount of money to cover your losses.
Common Exclusions You Should Know
- Bodily injury (BI): EPLI does not cover bodily injury. It covers only cases related to bullying and mental distress due to a hostile work environment.
- Property damage: EPLI does not cover property damage.
- Penalties and fines: EPLI will not cover monetary penalties as well as criminal penalties.
- Criminal activities: If an employer is involved in illegal activities, then EPLI will not provide coverage.
- Contractual liability: EPLI does not cover any loss arising from a commitment to an employee, as mentioned in their contract.
- Punitive damages: Covering punitive damages is prohibited by law in some states. Additionally, the Legal Information Institute states that the court gives a verdict of punitive damage in only about 5% of its judgments.
- Strikes or lockouts: EPLI does not cover costs due to strikes or lockouts by employees.
- Violation of laws: Employment practices liability insurance does not cover the breach of laws.
Violations Not Covered Under EPLI
As per the Insurance Information Institute, violations of the following regulations are not covered under EPLI:
1. National Labor Relations Act: protects laborers’ rights to form a union and collectively bargain with their employers.
2.Worker Adjustment and Retraining Notification Act: states that an employer must provide 60-day advance notice if they lay off more than 50 employees at a time.
3. Occupational Safety and Health Act (OSHA): protects employees’ right to safety and healthcare services while on duty.
4. Employee Retirement Income Security Act (ERISA): gives out guidelines for retirement, health, as well as pension plans.
5. Workers’ compensation laws: gives guidelines to pay employees’ expenses if they are harmed while performing job-related duties.
6. Consolidated Omnibus Budget Reconciliation Act (COBRA): allows employees to get health insurance coverage for some time after leaving the organization.
Standard endorsement to Employment Practices Liability Insurance
It gives coverage for discrimination lawsuits filed by third-parties, such as customers or suppliers. If your employees need to work with third parties often, then we recommend that you get third-party coverage as an addition to your EPLI.
Types of Insurance that Include EPLI
Different types of businesses need different insurance packages. The types of insurance packages that include EPLI are:
Factors Affecting Cost of Employment Practices Liability Insurance
The cost of EPLI coverage is explicitly different for each business. Some factors that decide your premium are:
Number of employees
There are limits to the number of employees covered under one policy. Having more employees significantly increases your risks and defense costs. Hence, the premium is bound to be higher.
History of lawsuits or employment issues of the employer
Insurance carriers look at an employers’ history to calculate their risks before planning policies. The price would be higher if claims, including employment cases, had occurred frequently in the past.
Employee turnover rate
The employee turnover rate indicates a certain level of risk. The higher number of new employees in an organization indicates a greater amount of risk. A higher employee turnover rate is also an indicator of dissatisfaction among employees. Therefore, the premium rate will be higher if employees are leaving often.
Some Common Lawsuits Relevant to EPLI
As per the National Law Review, the type of employment cases that saw an increase in 2019 were:
Medical marijuana use
The New York Times reported that employers would not be able to force job applicants to test for the use of marijuana, as per the ruling of the City Council. EPLI will cover losses from cases related to the use of medical marijuana.
Sexual harassment lawsuits
The rise of the “Me-Too” movement has encouraged women and men to come forward about their experiences of sexual harassment. In fiscal year 2019, the EEOC received 7514 sexual harassment charges out of a total 72,675 charges in the United States.
Whistleblower claims filed by employees in America has resulted in more than $2 billion losses to employers embroiled in wrongdoing since the Securities and Exchange Commission’s inception, according to the 2019 Securities and Exchange Commission Annual Report.
Website accessibility lawsuits
If websites are not accessible to differently-abled people, then it violates the law in some states. Therefore, these lawsuits are also on the rise. Third-party coverage includes these types of claims.
It is wise to have EPLI in all cases. Overall, employment practice liability coverage allows employers to transfer their risks and focus on their company’s growth.
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