Employment Practices Liability Insurance (EPLI)

Employment Practices Liability Insurance (EPLI) can cover lawsuit expenses when an employee sues over discrimination, harassment, wrongful termination, and similar issues. These lawsuits are increasingly common, so Employment Practices Liability Insurance is essential for many small businesses.

Laws like the Americans with Disabilities Act and the Family Medical Leave Act outline standards employers have to meet. When employers break these rules, even without meaning to, they may face a lawsuit. Employment practices coverage helps businesses handle the cost of these suits.

Employee lawsuits can be expensive. According to HR Morning, a news site for HR professionals…

• The average EPLI lawsuit settlement is $125,000.
• The median judgment against an employer is about $200,000.
• 25% of judgments are more than $500,000.

Those costs don't include hidden expenses, such as lost productivity or reputational damage.

Plus, it can be hard to defend yourself in an employee lawsuit. A million-dollar decision might be based on little more than "he said, she said" testimony from you and the person suing you.

That's why it's smart to have EPLI coverage if you have employees. It provides the funds to handle your defense and settle lawsuits quickly.

How Does Employment Practices Liability Insurance Work?

EPLI covers the bills when an employee sues you over employment-related issues.

Once you have employees, you're legally obligated to treat them a certain way. Employment Practices Liability Insurance protects your business and its managers, employees, officers, and directors when prospective, current, or former employees accuse you of falling short.

Typically, EPLI coverage kicks in when an employee or group of employees claim their civil rights were violated or they were unable to complete their work in a fair environment. For example, an employee may accuse you of:

• Mismanagement of their benefits.
• Sexual harassment.
• Wrongful termination.
• Wrongful discipline or demotion.
• Slander or libel.
• Discrimination based on age, gender, religion, race, or other protected classes.
• Breach of an employment contract.
• Privacy invasion.
• Emotional or mental distress.
• Negligent decisions related to hiring, promotions, or compensation.

Note: Employment Practices Liability Insurance is different from Employer's Liability Insurance, which covers lawsuits over workplace injuries.

5 Things to Know about Your EPLI Coverage

These five things can help you better understand what to expect from your EPLI policy:

1. EPLI is usually a claims-made policy. That means a claim is only covered if your policy is active when the incident in question occurred AND when the claim is made. For example, let's say your business closes, so you cancel your EPLI. Unfortunately, a former employee files a discrimination claim against your business. Your policy was active when the incident occurred, but not when the claim was filed. As a result, it probably won't cover the suit. In some situations, you may be able to extend a policy beyond its original end date.
2. The cost of EPLI depends on several factors. Employment Practices Liability coverage costs depend on your business's size, industry, hiring and firing practices, employee turnover rates, and risk profile. Your insurer may ask to see written personnel policies before you can receive a quote.
3. Your EPLI coverage will have a deductible and exclusions. Most policies include a deductible (the amount you pay out of pocket before you can receive funds). What's more, some policies limit coverage during mergers, acquisitions, or major staff reductions.
4. You may want to give yourself wiggle room when selecting coverage limits. As we mentioned earlier, employment dispute lawsuits can be expensive. Keep that in mind when choosing your policy limits.
5. Your insurance company may choose an attorney for you. Some Employment Practices Liability policies stipulate that the insurance company chooses your attorney when a claim is filed. These attorneys are typically chosen for their expertise with relevant cases.

Tips to Reduce Your Risk of Employee Lawsuits

Certain business practices can help minimize your risk for employment practices liability claims and may even lower your policy premium. Consider putting these pointers into practice.

• Create sound personnel policies and practices. Make sure personnel rules are in writing. Review these rules with every employee and enforce them when necessary.
• Keep an "open door" policy. Make sure your team knows how to report employment issues and that they won't be punished for doing so.
• Document your decision making. Keep a written record of your hiring, firing, and promotion decisions. If you're accused of unfair practices, this documentation could provide evidence for your defense.

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