Employment practices liability insurance

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.

Employment practices liability insurance 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.

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.

Unfortunately, employment-related claims are both common and costly. You're actually more likely to be sued by an employee than you are to have a fire at your office – even though more businesses carry insurance to protect against the fire, not the lawsuit.

The risk increases for businesses that are too small to have a human resource team. Businesses with a small staff often lack the time, energy, and expertise to resolve employee disputes before they become legal issues.

Employee lawsuits can devastate your reputation and finances. The Massachusetts Commission Against Discrimination gives several examples of recent settlements:

• $100,000 for an employee terminated because they could not perform all of their duties while in a wheelchair
• $70,000 for an employee who faced sexual harassment from a high level executive
• $230,000 for an employee terminated after requesting leave for hip surgery and planning to retire within three years

EPLI coverage keeps you from paying these high costs out of pocket. It can cover any legal defense costs, including a settlement or judgment if an employee presents a valid claim.

Bundles usually cost less than purchasing standalone coverage, and with EPLI you may have a few options depending on the carrier.

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.

While businesses often purchase EPLI with D&O insurance, they also have the ability to add EPLI as 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 with 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 lawsuits related to employment practices. Employer’s liability insurance helps pay for lawsuits over employee injuries.

Both policies protect business owners from employee lawsuits, which can cost your business more than $125,000. 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.