Employment Practices Liability Insurance for your business

Did you know that one in three employers has been sued by an employee in the past year?

The number of lawsuits filed by workers against their employers has been rising. No company is immune and small or newer businesses are often the most vulnerable. In these instances, Employment Practices Liability Insurance (EPLI) is valuable coverage for your company, but there are some exposures against which it won’t protect your business.

In this blog, I’ll explore what EPLI covers, what it doesn’t, and provide some tips you should consider when purchasing a policy to maximize your protection.

What does EPLI cover?

An EPLI policy protects you, an employer, against allegations of wrongful employment practices. The policy covers legal costs to defend your company and its leadership team, whether you win the lawsuit or are liable and lose. Settlements and verdicts also can be covered by an EPLI policy.

Examples of commonly insured allegations are alleged wrongful acts including harassment, discrimination, retaliation, wrongful termination, hostile work environment, or failure to hire or promote based on protected classes of people.

In addition, most EPLI policies extend coverage to allegations related to non-employees. This is called third-party EPLI coverage.

The cost of EPLI coverage depends on several factors including:

  • Type of business
  • Number of employees
  • Whether your company has been sued over employment practices before
  • Employee turnover
  • Established rules and practices (hiring procedures, employee handbook, etc.)

Some insurance providers offer EPLI coverage as an endorsement to their business owners policy, while others offer EPLI as a stand-alone policy.

What does EPLI NOT cover?

  • An EPLI policy has many limitations and exclusions. An allegation or claim that is made before the first EPLI policy is purchased is not likely to be covered. Prior or pending litigation that exists before the EPLI policy was purchased is also not likely to be covered.

Some typical exclusions are allegations related to criminal/fraudulent acts and contractual liability (although some policies defend these allegations of breach of contract).

  • Typically, EPLI policies do not pay for punitive damages, or civil or criminal fines and liabilities covered by other insurance policies, such as Workers’ Compensation.
  • Due to the Fair Labor Standards Act (FLSA), there are a subset of risks that are excluded from EPLI coverage including wage and hour Wage and hour allegations are a significant risk in many industries, and federal law requires that all non-exempt employees be paid properly in accordance with FLSA and local regulatory requirements. Some EPLI policies include defense coverage only, for wage and hour allegations, subject to a sub-limit of insurance. For very large employers, indemnity coverage in addition to defense coverage for wage and hour allegations is available.

Given the limited insurance that is available for wage and hour related risks, it is essential that you consider other risk management techniques to address this exposure including a review of pay practices or a Human Resources assessment and review.

  • Immigration expenses related to immigration investigations are another subset risk due to FLSA that are generally not covered. However, some policies provide a small sublimit of insurance for legal costs associated with immigration expenses. The burden is on you, the employer, to verify properly that all employees are eligible to work in the United States, and significant risks exist even if documentation presented by the employee is false.
  • Pay attention to the details of your EPLI policy to ensure you have the broadest coverage possible; don’t just consider price.
  • Review the definition of “who is an employee” on the policy and make sure it is broad and specifically includes interns, externs, independent contractors, in addition to full and part time employees.
  • Review the definition of “wrongful act” on your policy – is it as broad as possible in terms of coverage?
  • Think about how much cash you have available to cover deductible – If cash on hand is an issue, it might make sense to consider separate policies to keep deductibles lower. For instance, hospitality businesses may benefit from purchasing separate policies for each of their locations, which will keep their deductible lower, versus lumping all coverages together with one large deductible. This also helps limit exposure.
  • Understand both the retro-active date and prior and pending litigation dates – These dates are important EPLI terms to review carefully to ensure that you are avoiding gaps in coverage related to prior acts and ensuring the litigation is submitted to the insurance company prior to a policy renewal.
  • Do you need more coverage? If you can afford a higher deductible to pay out of pocket should an incident happen, and you are more concerned about having enough coverage, then you could consider combining locations on one policy and sharing a higher limit.
  • Is third party coverage included? Third party coverage is readily available and addresses exposures related to non-employees.
  • Is wage and hour defense coverage included, and what is the sub-limit? This is a key coverage for many industries and insurance carriers vary significantly in their offerings.
  • Do you have a choice of counsel? If there is a duty to defend, the insurance company will usually choose from attorneys they have on their panel. If you have counsel you work with already and like, communicate this to your broker before purchasing the policy, so the broker can select an insurance company that will admit that law firm as your choice of counsel and have the attorney rates pre-approved. Or select an insurance company that already has the law firm included on their panel. Note that if you select your own counsel, the insurance company may only pay panel rates versus what the law firm usually charges.
  • Ask your insurance professional if the insurance companies (with whom they are quoting your coverages) offer immigration expense coverage.

Employment Practices Liability Insurance (EPLI) is a valuable coverage for your company. The best way to ensure your company has the proper coverage and policies is to work closely with your insurance professional.

Should you have any questions, contact our hospitality insurance specialist Neil Owens with the Hilb Group at nowens@hilbgroup.com.