As a business owner, you need more insurance than the average person. Having the right commercial insurance policies in place can mean the difference between your business surviving a claim or not. That’s why you sign up for all of the essential types of business insurance, like general liability, errors and omissions (E&O), and workers’ compensation insurance.
But there’s one common type of claim that many insurance companies exclude in the business policies listed above: those related to employer and employee behavior. This includes things such as sexual harassment, discrimination, and wrongful termination.
Without the proper insurance policy in place, you would be liable for the cost of defending employment-related claims. Employment practices liability insurance (EPLI) is the missing type of business insurance you need to help ensure your company survives the strain of an employee lawsuit.
If you’re not sure you need this insurance policy, keep reading. Below we’ll show you what EPLI covers and doesn’t cover, plus discuss who it’s right for.
What Is an EPLI Policy?
EPLI stands for employment practices liability insurance. This type of policy protects you against lawsuits based on harassment, discrimination, wrongful termination, and other claims for employer or employee behavior. If your policy includes third-party coverage, it also protects you from similar claims made by customers and vendors.
Since your standard business owner’s policy often excludes these types of claims, it’s important to purchase an EPLI plan to make sure you’re covered. You may be able to add this coverage to your existing business policies through an endorsement. Otherwise, you’ll need to buy a stand-alone policy.
How Does EPLI Work?
Employment practices liability insurance protects you from a variety of accusations and claims. Let’s say you interviewed a candidate for a position and didn’t hire the person. That candidate could claim you didn’t hire them because of discriminatory practices.
Or say that an employee files a sexual harassment complaint against you or claims you fired them without cause. In each of these cases, you risk being sued. If that happens, your EPLI insurer can review the case. If it qualifies as a covered event (as per your policy’s terms), they can try to settle on your behalf or pay for your defense costs and legal fees, up to the limits of your policy. You can find a list of commonly covered events further below.
Since harassment allegations have such a long statute of limitations, it’s important to note the type of coverage you have. The two common structures are claims-based and occurrence-based, but EPLI is typically written as claims-based.
Claims-based means that your policy must be active when employment-related issues are brought forward. This insurance would cover you even if the incident in question happened years back—before you had coverage.
Occurrence-based coverage means your policy had to be in place when the incident leading to the claim occurred. Since these two types of coverage vastly differ in protection, you need to read your policy carefully to see which type you have.
With the more common claims-based policies, try to find terms that have full coverage for prior acts. These won’t include a specific retroactive date. That way, you’re covered for past events that are brought to suit after your insurance is in place.
Who Needs EPLI?
Are you a business owner with employees? If your answer is yes, then EPLI may be right for you. Each year, the US Equal Employment Opportunity Commission (EEOC) handles tens of thousands of charges for workplace discrimination. In 2020, they dealt with 67,448 charges, and these types of claims are expected to become more common. The claims span all industries, so employers of all types and sizes are at risk for lawsuits.
Without EPLI, you could be at financial risk if an employee or former employees file a claim against you. Legal costs can add up quickly, and employment practices liability coverage can give you the peace of mind that your business could survive an employee lawsuit.
What Does EPLI Coverage Cover?
EPLI covers claims made by your employees. If you have third-party protection, it can also cover claims made by your customers or vendors. Here’s a quick look at the EPLI claims this insurance is designed to cover.
- Discrimination claims (including age discrimination, disability discrimination, and discrimination based on other factors)
- Harassment, including sexual harassment
- Failure to promote a person
- Wrongful termination
- Retaliation
- Family and Medical Leave Act violations
- Wrongful discipline
- Defamation
Some companies also offer training on employment law and best practices along with their policies. This training can help ensure that your employee procedures and employee handbook are up to date and contain the best wording to minimize exposures.
What Is Not Covered By EPLI?
Some exclusions are common to EPLI, so you’ll want to read your policy carefully to understand precisely what is and isn’t included. Here are some exclusions you can expect to see:
- Property damage
- Intentional or dishonest acts
- Bodily injury (speak to your agent to see about having emotional distress damages included to help offer more complete protection)
- Losses related to unpaid wages or penalties
- Claims related to unemployment
- Pending or prior claims
An EPLI policy doesn’t provide complete protection for your business. You can make sure your business has all the insurance it needs by talking with your insurance agent. One type of insurance you don’t want to overlook is workers’ comp. This covers you if your employees sue for job-related injuries. Hourly’s workers’ comp platform syncs your payroll data directly to your policy, so your premiums are based on real-time wages. There’s no guessing involved, and you won’t have any unpleasant audit surprises at the end of your policy.
How Much Does EPLI Cost?
The cost of EPLI varies considerably based on the following factors:
- The number of employees on your payroll
- The net worth of your company
- The industry you’re in
- Your turnover rates
- The policies and procedures you have in place
- Your company’s history of claims
- The number and types of training you require your employees to take
The size of your company significantly impacts the price tag on this insurance policy. For a small or medium-sized business with five to 20 employees, you might pay between $800 to $3,000 a year for this coverage. If you’re a larger business, work in a high-risk industry, or have a history of employee lawsuits already, you can expect your premium to increase considerably, perhaps even to the hundreds of thousands range.
Reduce Your Employment Practices Liability with Risk Management
Whether or not your EPLI company provides risk management training, take it upon yourself to understand employment law. Risk prevention is key to avoiding these types of claims.
Take time to regularly review your employment practices and ensure they’re up to date. Here are a few other steps that small business owners can take to reduce the risk of employee claims.
- Have an easy-to-understand code of conduct and employment contract for all employees and new hires.
- Develop a process for dealing with misconduct, and ensure your employees know the procedure for reporting problems.
- Don’t ignore misconduct claims; do an internal investigation to try to get to the bottom of any reported problems.
- Create a clearly defined process for hiring and firing employees and make it a point to treat everyone with respect during these procedures.
- Keep records of any problems and the steps you took to resolve them. This paperwork is vital if you get sued.
Unfortunately, even with the best procedures and processes in place, lawsuits can still occur. That’s why having the right coverage is crucial for business owners.
Make Sure You Have the Coverage You Need
As a business owner, you must protect your company. Part of that role is making sure you have the right insurance coverage in place. With employee lawsuits on the rise, and most general liability policies excluding these types of claims, it’s wise to consider EPLI.
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