Protects Businesses From Employee Litigation

Like just about every type of business insurance, the role of employment practices liability insurance (EPLI) is to serve as a financial safeguard against unexpected workplace exposures. Virtually all employers want to do the right thing by their employees. But when employment practices claims arise, whether they are merited or not, defending against them can be a costly proposition. The legal fees alone can cost employers many tens of thousands of dollars.
An employment practices claim may be lodged against a business, its officers, owners, employees, and/or managers. Under federal law, as well as under some state and local laws, claims may be made regarding harassment; wrongful termination and other employment practices; maintaining a hostile work environment; age, sexual, and gender discrimination – as well as a host of other acts and omissions.
As a small business owner, here's what you need to know about EPLIs:
  • EPLI coverage typically ranges from $1 million to $25 million in coverage limits.
  • Depending on how it's written, an EPLI policy may also cover state and local laws that attempt to address workplace practice issues.
  • Most EPLI policies include a deductible. Once that is met, policies cover the cost of your legal defense, along with the costs of judgments and settlements, up to your coverage limit. Employment laws are unusual in that employers, if they lose a case, are required to pay the costs of the employee's legal fees as well.
  • The cost of your EPLI coverage will be based on the type, size, and risk profile of your business. As part of this determination, insurance companies may ask to see your written personnel policies to help them assess your potential for risk.
  • An EPLI policy usually doesn't cover criminal conduct or fines, civil fines, penalties, and punitive damages. EPLI also excludes coverage for claims covered by other insurance policies, including property damage and physical injury.
  • Some directors and officers policies may include EPLI coverage, but this may be limited to your company's directors and officers and leave your company vulnerable to litigation directed at other company employees.
  • If an EPLI claim is to be covered, it must be reported to the insurance company while the policy is in effect, or within a period explicitly outlined by the policy. Additionally, the event that gives rise to the employee claim must have occurred on or after the start date of the policy. Some insurers may offer retroactive dates.

Game Plan

  • Make it a point to discuss the appropriate EPLI coverages for your business with your insurance professional. This conversation should serve as a great starting point for helping you find out what state and local employment laws you will also need to comply with.
  • As you’re researching EPLI policies, keep in mind that the pricing largely rests on a policy’s limits and deductibles. Be sure you understand the kinds of claims that will be covered – and those that are excluded. Narrower coverages may cost less in the short run, but they may also fail to adequately cover your business.
  • Many policies will specify that the insurer has the option to choose your legal representation should a claim arise. If you’re not comfortable with that, you may want to shop around for a policy that takes your preferences into account.
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