Why do you need Employment Practices Liability Insurance?
Employment practices liability insurance, or “EPLI,” is a type of management liability insurance. Other coverages within the management liability category of business insurance include directors & officers (D&O) insurance and fiduciary liability insurance. Often, they can all be packaged together on the same policy. Here’s what you need to know about EPLI.
If you hire employees or independent contractors, you take the risk that a dispute will develop between you and them. You hear about cases like this all the time. A prospective employee who says he wasn’t hired because of his race, religion, or sexual orientation. Or a current employee who sues her employer alleging inappropriate advances or other forms of harassment from her supervisor. Or a former employee who alleges wrongful termination and unpaid bonuses.
These disputes are surprisingly common and the legal and regulatory frameworks of our federal and state governments give employees several ways to take action against their employers.
On the legislative side, there are several different statutes that have created varied sets of broad (and sometimes overlapping) rules. These include Title VII, the Americans with Disabilities Act (ADA), and the Age Discrimination in Employment Act (ADEA). And those are just the federal statutes! Many states have even more stringent rules than those outlined by their federal counterparts.
In terms of enforcement, the US government has created the Equal Employment Opportunity Commission (EEOC) to advocate and provide recourse for individuals who feel they’ve been victimized by their employers.
Basically, this means it’s relatively easy to bring a cause of action against an employer. This is by design. The federal government created a mechanized, systematic approach to recover money from employers who they determine have behaved badly. And, again, states usually have their own commission that takes a look at these claims as well.
The numbers back this up. In 2014, more than 1 in 10 US companies were estimated to have been involved in an employment practices dispute. If your employees work in certain states — California, DC or Georgia for example — the chances of being embroiled in one of these suits increases. Once the claim does hit, you can expect a $125,000 price tag on any dispute that results in a judgment or settlement. You can also expect around 9 months of headaches before you even get to that point.
What is Employment Practices Liability Insurance?
EPLI policies protect the company and its management by paying the costs of defending against certain suits from employees or investigations from government agencies. Common claims include allegations of:
If you (as a manager) or the company itself is named in such a claim, the insurance company would defend you and pay the judgment or settlement against you.
Keep in mind how easy it is for an employee to start an action that requires you to mount a legal defense. Even if an allegation is baseless, you still have to pay to defend yourself and have the suit dismissed. Your EPLI carrier will take this job off your plate.
Carriers are unique in what they want their policies to cover. Certain carriers are willing to offer protections that others might not but the right EPLI policy can be tailored to your specific needs. For instance, wage and hour claims (e.g. unpaid overtime) are one of the most common types of employment disputes…they are also one of the matters most commonly excluded from coverage in EPLI policies. Same goes with investigations related to immigration status, suits from non-employees that allege harassment and the loss or theft of employees’ personally identifiable information.
The key is having a partner on your side who can work with you to identify potential exposures and find the underwriter who can offer a policy that meets your specific needs.
How it Works
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