What Is Employment Practices Liability Insurance, and Why Does My Business Need It?
Employee lawsuits against employers are on the rise. Employment practices liability insurance (EPLI) is coverage to protect your business against employee claims that their rights have been violated. Some insurers will provide this coverage as a Business Owners Policy (BOP) endorsement, while others offer it as stand-alone insurance.
What Does EPLI Cover?
Employment practices liability insurance provides protection against a range of employee claims, including:
- Wrongful termination
- Sexual harassment
- Mismanagement of employee benefits
- Wrongful discipline
- Negligent evaluation
- Breach of employment contract
It can help cover your legal defense costs and any settlements or judgments arising from such a claim. Common exclusions include third-party property damage or bodily injury, work-related employee illness or injury, wage and hour claims, and intentional or dishonest acts. EPLI coverage will not typically pay for punitive damages (designed to punish the defendant for wrongdoing) or for civil or criminal fines.
What Is a Claims-Made Basis?
This type of coverage is typically written on a claims-made basis, meaning the incident that led to the claim and the claim notification must have occurred during the coverage period. Employment practices claims often arise months or years after an alleged incident occurred. If your policy was no longer in effect when a claim was made, your business would not be covered.
When Would My Business Need Employment Practices Liability Insurance?
A business of any size is at risk of litigation brought by employees. The risk increases as you hire more employees and managers. Even interviewing a prospective employee poses a risk, as that person could allege discrimination.
We live in a litigious society. Defending your company against an employment lawsuit could cost many thousands of dollars, in addition to the cost of any award or settlement.
How Can I Help Prevent Employee Lawsuits?
The best preventative approach is to educate managers and employees so problems do not occur in the first place. You will need effective hiring and screening programs in place to avoid discrimination, and company policies posted throughout the workplace and placed in employee handbooks. Educate employees on what steps to take in case of harassment or discrimination by a supervisor, and make sure supervisors are aware of company policy.
How Much Does EPLI Cost?
Annual premiums for employment practices liability insurance can vary widely, depending on a number of factors, including:
- Number of employees
- Coverage amount
- Deductible or self-insured retention (amount for which the policyholder is responsible)
- Employee turnover rate
- Hiring and firing practices
- Claims history
According to Fit Small Business, EPLI premiums for a company with one to 10 employees, with coverage amounts of $500,000 per occurrence and $1 million aggregate, and a $2,500 deductible (or self-insured retention) range from $800 to $2,000 annually. You can lower your premiums by increasing your self-insured retention or deductible amount, but that also means you will cover more costs in the event of a lawsuit.
Our agent can evaluate your company’s employment practices liability insurance needs and help you find the appropriate coverage at the best available rates.