Employment-related lawsuits are on the rise and are a growing concern for employers of all sizes, including smaller home-based businesses. In fact, it’s been reported that 1 in 5 cases in civil courts is an employment-related lawsuit. Claims such as discrimination, wrongful termination, and harassment are among the most costly and time-consuming issues an employer can face. Moreover, such claims can seriously impact an organization’s reputation and stability. This is the reason it is critical for businesses to implement effective measures such as an Employment Practices Liability Insurance to avoid Employment Practice claims.

So, what is Employment Practices Liability Insurance (EPLI) and why do you need it?

EPLI is a policy that covers your risks found in some of the most common employment-related lawsuits.

They include the following:

  • Sexual harassment (subjecting an employee to unwelcome sexual advances, obscene or offensive remarks, or the failure to stop such behavior)
  • Wrongful termination (the discharge of an employee for invalid reasons)
  • Discrimination (the denial of equal treatment to employees who are members of a protected class)

Evidence of desirable employment practices and policies may be required for an EPLI policy and will certainly help defend against a suit (even for a small, home-based business with only a few employees). The underwriter may require a copy of the following documents or policies to show that you are taking steps to reduce your risks:

  • Annual conduct reviews
  • Employment applications
  • Enforcing performance policies
  • Employment offers
  • Employee orientation process
  • Improper documentation of the items listed above
  • Sexual harassment
  • Disability and accommodations
  • Equal opportunity
  • Employee discipline
  • Termination
  • Performance evaluations
  • Internet usage/employee privacy
  • Leaves of absence
  • Internal job postings
  • Hiring and interviewing
  • Discrimination
  • Resolution/arbitration

EPLI will protect your company against a lawsuit or pay for a claim. As costs for litigation and damage awards climb, experts predict that employment liability will only become more complex. As a result, it is critical for business owners to understand their exposures and options for managing risks.

Most employers are not prepared to absorb the risk of loss from such employment practices claims. When evaluating and selecting insurance policies, companies should review the wide range of coverage and the adequacy of limits. They should understand who controls the claims handling process—the insured or the insurer. Selection of an appropriate policy for your company’s needs can be difficult and should be reviewed carefully.

EPLI is not meant to replace sound employment practices. In fact, most insurance companies will not insure a company unless it has some basic employment practices in place. What constitutes best employment practices? This would include employee handbooks, post-incident investigation practices, and arbitration or mediation policies. These are some of the major items that insurance companies expect an employer to have when applying for an EPLI policy. You should be prepared for the insurance company to scrutinize all of your HR functions. Also, recent employment lawsuits, size of company, geographic location, and type of business or industry all affect the availability and cost of insurance.

Here are some of the most frequently asked questions about EPLI:

Is Employment Practices Liability the Same as Professional Liability Insurance?

There is a difference between Professional Liability Insurance and EPLI. Professional Liability Insurance covers a business owner for third-party claims of negligence. For instance, if your business failed to complete a service, E&O insurance would come into play. EPLI covers employment-related claims, not client or third-party claims.

Do You Need EPLI If Your Business Has General Liability Insurance?

It’s important to remember that employment practices are not covered under General Liability. General Liability covers third-party bodily injury or property damage. EPLI, however, covers in-house claims (not third-party) and does not cover physical harm or property damage.

Is EPLI the Same as Employer’s Liability Insurance?

Do not be confused. Though they have very similar titles, Employment Practices Liability Insurance is very different than Employer’s Liability Insurance. Employer’s Liability Insurance covers claims of work-related illness and injury due to an employer’s negligence. EPLI, on the other hand, covers claims regarding an employer’s treatment of employees and potential employees.

Employer’s Liability Insurance usually falls under Workers’ Compensation Insurance. And, as mentioned before, ELPI is typically a stand-alone policy.

How Much Does EPLI Cost?

EPLI costs can vary greatly depending upon the business. On average, annual premiums range from $20 per employee to $100 per employee, per year.

Here are the biggest factors that affect the cost of EPLI insurance:

  • Number of employees
  • Rate of employee turnover
  • Employment procedures
  • Past claims
  • Desired amount of coverage
  • Desired amount of deductible or self-insured retention (SIR)

As expected, the more employees you have, the greater your risk of an employment lawsuit. So, most policies are primarily based on the number of employees your company employs at any given time. The other factors are then considered to form a complete risk profile for underwriting your policy. Don’t hesitate to connect with us with any questions you may have regarding bringing EPLI into your workplace.

This article was published in the Spring 2023 issue of the General Insurance Services Risk & Business Magazine.  Access the full publication here.

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Employment Practices Liability Insurance