Learn what EPLI is and how it can protect your business

Key takeaways:

  1. EPLI protects businesses against claims made by employees regarding employment practices
  2. EPLI offers unique protections not covered by other commercial insurance policies
  3. EPLI covers your business against employee claims related to harassment, discrimination, termination, and employee benefits
  4. EPLI costs vary depending on several factors such as the size of your business

From large corporations to small family-owned companies, business owners across the board use various commercial insurance policies to protect themselves and their business in the case of a lawsuit. Many policies cover companies against outside threats such as client or customer complaints. But what happens when an employee files a claim? That’s where Employee Practices Liability Insurance (EPLI) comes in.

Small to medium-sized organizations are increasingly vulnerable to employment-related claims, including discrimination, harassment, mistreatment, or wrongful termination. And unlike larger firms with in-house counsel, small businesses may not have easy access to legal advice. Without the right insurance, employment-related claims can take a significant financial toll on your bottom line.

What is EPLI?

EPLI “covers businesses against claims by workers that their legal rights as employees of the company have been violated,” according to the Information Insurance Institute.

Depending on the policy, EPLI may cover seasonal employees as well as independent contractors and protects company management as well as current and former employees. Companies may use this type of insurance to cover legal fees associated with employment-related lawsuits.

Why is EPLI important

As much as you strive to build a positive and inclusive workplace environment, no business is exempt from the possibility of a sexual harassment or discrimination lawsuit. And if your company does receive a complaint, you’re likely to incur steep legal fees and settlement costs—even if the claim has no merit.

According to a 2015 study, “one in five business under 500 employees will face employment charges with an average cost to defend of $125,000, including expenses such as attorneys’ fees and settlement costs.” Most businesses cannot afford to take a $125,000 hit – and if you’re in that category, you may want to consider purchasing Employee Practices Liability Insurance.

How does EPLI differ from other commercial insurance?

There are many types of commercial insurance policies, and they all cover something different.

Directors and officers liability insurance

Directors and officers liability insurance protects an individual’s personal assets if they are sued in relation to the management of the company. But this type of coverage only applies to individuals and not to the company itself. EPLI addresses this gap in coverage by protecting the company as a whole in the event of an employment-related lawsuit.

Errors and admissions/professional liability/indemnity insurance

Known by many different names, this type of insurance protects businesses from the risks involved in delivering advice, making recommendations, or providing services to outside clients. However, it will not protect a company against claims related to discrimination, harassment, or other employee-related situations.

What does EPLI cover?

Policies may vary, but, in general, EPLI covers claims related to:

  • Wrongful termination
  • Wrongful discipline
  • Wrongful infliction of emotional distress
  • Breach of contract
  • Failure to employ or promote
  • Deprivation of career opportunity
  • Mismanagement of employee benefit plans
  • Sexual harassment or discrimination

What EPLI does not cover

EPLI can provide relief against certain employment-related claims, but it’s also important to understand EPLI’s limitations. Claims related to the following are not typically covered by EPLI policies:

  • Bodily injury
  • property damage
  • Contract-based claims
  • Workers’ compensation statues

Cost of EPLI

How much an EPLI policy will cost depends on different factors, including the type of business, the number of employees, and if there have been past employee lawsuits. Policies typically cover legal fees, whether you win the case or not, as well as costs related to settlements or judgments.

What can you do to prevent employee lawsuits?

In addition to adding EPLI to your insurance portfolio, there are other steps you can take to protect your company and reduce your risk of a lawsuit.

Be up-front about company policies

Be sure your company has clearly defined anti-harassment, anti-discrimination, anti-retaliation, and equal opportunity employment policies. But don’t stop there; it’s also important to communicate these policies to employees, managers, and new hires, whether through an employee handbook or other form of communication. 

Obtain signed acknowledgments of policies and procedures

Have current employees and new hires sign an acknowledgment that they received a copy of company policies and procedures. This will demonstrate your company’s clear stance on specific issues and motivate employees to take policies seriously.

Provide periodic training for managers and employees

Sexual harassment and discrimination training can be an effective way of educating your workforce on company policies and procedures. In fact, some jurisdictions go so far as to require training in these areas.

Lastly, make sure your employees know what steps they should take if they encounter harassment or discrimination in the workplace. And be sure to record or document all actions and communications in the event of an employee dispute.

Unlike other insurance plans that cover lawsuits from clients or customers, EPLI protects businesses from claims that originate within the company. If such a claim arises and you’re not covered, your business could owe significant fees and settlement costs. You’ve worked hard to build an organization that runs smoothly, and the right coverage will ensure it stays that way for years to come.

If you’re thinking about adding EPLI to your insurance portfolio, Avante Insurance can help. We’ve worked with many small businesses to provide a range of commercial insurance policies, including workers’ comp insurance, cybersecurity insurance, general liability insurance, and EPLI.

Call us with any questions or fill out our online form for a quote.