What is Employment Practices Liability Insurance and Why Does Your Business Need It?

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What is Employment Practices Liability Insurance and Why Does Your Business Need It? on avanteinsurance.com

Protecting your business against discrimination and harassment claims

Commercial insurance is essential if you want to protect your business and avoid financial complications. Some commercial policies cover damage to property or loss of equipment such as computers, printers, or office furniture. Others can protect against lawsuits if a client or employee is ever injured on your property. A third type protects against lawsuits related to claims made by employees. It’s called Employment Practices Liability Insurance (EPLI).

What is the purpose of Employment Practices Liability Insurance?

According to the American Bar Association, “EPLI covers companies against claims or lawsuits filed by employees, former employees and employment candidates regarding their employment relationship with an employer … A company can use this type of insurance to cover expenses involved in defending against a claim or lawsuits related to employment (regardless of outcome) and provides indemnification of the employer if the case settled or a verdict obtained…”

What kind of claims does Employment Practices Liability Insurance cover?

EPLI is purchased to protect the company and employers, including directors and officers, as well as current and former employees.

Claims might include:

•  Discrimination (based on age, sex, race, religion, color, and national origin)

•  Sexual harassment

•  Wrongful termination or discipline

•  Emotional distress or mental anguish

•  Invasion of privacy

•  Libel or slander

•  Breach of contract

•  Employee benefits mismanagement

•  Violation of the Family and Medical Leave Act, Americans with Disabilities Act, or other laws

“In addition, some policies contain a catch-all category to provide coverage for claims of discrimination based on protected categories (e.g. sexual orientation) that are not covered under federal discrimination statutes but may be covered under state or local law,” according to the American Bar Association.

It’s important to note that this type of policy protects a company from the pre-hire process to the exit interview, including seasonal or temporary employees. For instance, if a prospective employee comes in for an interview and is not hired but sues claiming he or she was the victim of discrimination, you and your company would be protected.

What does Employment Practices Liability Insurance not cover?

EPLI is only meant to protect a company and its employers against claims such as discrimination. There are many areas that EPLI doesn’t cover, including:

•  Claims over wages or labor laws, ERISA, WARN acts, unemployment benefits, COBRA or  claims related to the National Labor Relations Act

•  Criminal or civil fines, penalties, or punitive damages

•  Bodily injury and property damage

•  Liability acts involving intentional wrongdoing

•  Other types of commercial policies protect a business, and its employers, in these areas.

Why do you need Employment Practices Liability Insurance in addition to other commercial policies?

As mentioned, each type of commercial policy covers certain things. For instance, most businesses and organizations carry Directors and Officers Liability Insurance (D&O), but this type of policy only covers individuals, not the company itself. “EPLI is most commonly designed to fill this gap in coverage. It generally provides reimbursement for the costs incurred in defending a lawsuit but does not cover reimbursement for any penalties suffered,” according to the Society for Human Resource Management (SHRM).

Companies might also carry Errors and Admissions Insurance (E&A) – sometimes called Professional Liability or Malpractice Insurance – which is meant to protect businesses and people who give advice, make recommendations, provide design or advertising services, or those who represent the needs of others.

Why Employment Practices Liability Insurance is essential

Just imagine if you or your company was ever sued for something like racial discrimination or sexual harassment. If the case ended up in court, you could incur hundreds of thousands of dollars in legal costs and attorney fees. The expense could be enough to cripple most businesses, putting everything you’ve worked so hard to achieve in jeopardy.

“EPLI is becoming more common as employment lawsuits become a part of doing business in this litigious age. Most employers are not prepared to absorb the risk of loss from such employment practices claims,” according to SHRM.

What does Employment Practices Liability Insurance cost?

Generally, the cost of EPLI insurance is based on the size of the company or organization, the type of business, and other risk factors. To determine how much EPLI coverage you need, it’s important to review your risks and the limits of each policy. You also want to make sure you know who will control the claims process – whether it’s you as the employer or the insurer.

See these other Avante Insurance posts covering commercial insurance options you should consider, no matter the size of your business:

Workers Comp Insurance

Cyber Security Insurance

Insurance for home-based, online businesses

Small Business Insurance Checklist

You’ve worked hard to build a business and make it a success. Make sure to protect your interests so a lawsuit doesn’t take you out of the game. Call us today to discuss your needs or for a quote.