Employment practices liability insurance

Any business with employees faces the risk of a lawsuit alleging unfair treatment, which is why you need EPLI coverage. It's especially important for small businesses that lack an HR department or a legal team to handle disputes.

Litigation costs are expensive, and you could end up paying hundreds of thousands of dollars if a jury finds your business violated an employee's rights.

Even when you've done nothing wrong, a frivolous lawsuit can still prove costly, which is why all businesses with employees should consider this coverage.

If an employee sues over wrongful termination, sexual harassment, equal pay, or another violation of employee rights, employment practices liability insurance helps pay for your legal costs.

This includes the risk exposures you might face if an employee files a complaint with the Equal Employment Opportunity Commission (EEOC), or a lawsuit involving the Family and Medical Leave Act (FMLA).

Specifically, your EPLI policy provides coverage for:

While EPLI is not required by law, every business with employees should have this coverage.

Even at a small business, an employee conflict could lead to a costly lawsuit. Regardless of whether you win in court, you'll still be responsible for costly legal fees, which is why employment practices liability insurance is so important.

Most small businesses are eligible for coverage. In general, insurers will want to make sure your company has basic human resources policies, uses employment applications, conducts periodic employee appraisals, and does not have a history of employment practices lawsuits.

Good candidates for EPLI coverage include the following types of businesses:

A computer and electronics store fails to pay unused vacation time when a technician accepts a new job, and the worker decides to sue.

A manager at a fast food restaurant regularly makes suggestive remarks to a cashier and follows up with unwanted advances. The employee complains to HR, but no action is taken. The cashier files a lawsuit against the restaurant for failing to prevent the harassment.

A manager at a medical billing agency accuses a subordinate of stealing money in front of other employees. The employee denies wrongdoing and sues the business for slander.

An older employee who has worked on the assembly line at a beverage manufacturing plant for over a decade is passed over for a promotion, which is awarded to a new, younger employee. The worker sues the factory for age discrimination.

A doctor makes crass jokes in the office, usually at the expense of a receptionist. When the HR department does not take their complaint seriously, the receptionist sues the business for sexual harassment.

While EPLI is an important part of risk management when you have employees, it does not provide all the protection you might need. For instance, your policy does not include coverage for:

Employment practices liability insurance coverage is a claims-made policy, which means that a claim is covered only if your policy is active both when the incident occurred and when the claim is filed.

It's important to maintain continuous coverage with this type of insurance, as a lapse could leave you vulnerable to legal defense costs. You may want to set a retroactive date for coverage, which provides protection for work done in the past up to a specific date.

For example, your house painting business is forced to close, so you cancel your EPLI coverage. A few months later, a former employee sues you for discrimination, but since you no longer have an EPLI policy, the insurer likely won’t pay for lawsuit costs. Note that in some situations, you may be able to extend a policy beyond its original end date.

One of the best ways to save money is to prevent employment practice claims from occurring in the first place.

A strong risk management strategy might include:

• A robust employee handbook
• Strict anti-harassment policies
• Educate managers on equal employment laws
• Sexual harassment and discrimination training for employees
• Protocols for hiring and firing fairly 

Small businesses can often bundle employment practices liability coverage with directors and officers insurance (D&O), another type of management liability insurance. D&O protects a business’s board members and officers against lawsuits over decisions they made on behalf of the company that resulted in financial loss.

Together, these two types of management liability insurance provide a broad base of protection against liabilities related to hiring and firing, employee rights, investment decisions, and employee benefits.

Depending on the carrier, other coverage options may be available. Bundles typically cost less than standalone coverage.

While businesses often purchase EPLI with D&O insurance, they also have the ability to add EPLI as an endorsement to other policy bundles, such as a business owner's policy (BOP) or commercial package policy (CPP).

Most EPLI policies include a deductible, which is an amount that you pay out of pocket toward legal costs before an insurer contributes.

Some policies limit coverage during acquisitions or major staff reductions. Others stipulate that the insurance company will choose your attorney if a claim is filed, usually because the insurer wants a lawyer who has expertise in relevant cases.

Employment dispute lawsuits can be expensive, so keep that in mind when choosing your policy limits and options for what EPLI covers.

Employment practices liability insurance covers discrimination claims and other lawsuits related to employment practices. Employer’s liability insurance helps pay for lawsuits from employee injuries, such as a worker who suffers a sprain or slips and falls on the job.

Both policies protect business owners from employee lawsuits, which can be extremely expensive. However, employer's liability insurance is a separate insurance policy that protects your business from legal defense costs if an employee claims your business's negligence caused their injury or illness.

Unlike EPLI, employer’s liability insurance is typically included in workers' compensation insurance.

Both policies are important for protecting small businesses from common lawsuits and incidents, but they cover different types of risk.

EPL coverage protects business owners from lawsuits related to employment issues, such as harassment, discrimination, and wrongful employment termination.

E&O insurance protects policyholders from legal costs relating to mistakes and oversights for professionals.

Many small businesses purchase both policies to ensure they're protected from a range of risks. Contact a licensed insurance agent to ensure that your company is protected with the right policies for your needs.