As a small business owner, you want to hire people to help your business grow. While employees are a great asset, they come with their share of risks to the organization.
Perhaps you had to fire someone. Or overlooked someone while giving raises or promotions. Or, an employee was subject to sexual harassment or emotional distress at work.
There are several things that can go wrong in the workplace, with or without your knowledge. And employees are within their rights to sue your organization over this.
Such lawsuits are not only a huge time sink, but can also drown your financial resources.
An Employment Practices Liability Insurance, or EPLI for short, is a form of insurance that help businesses cover such claims made by workers who believe that their employee rights have been violated.
In this article, we will take a look at the EPLI policy in great detail to understand the following
- What is an Employee Practices Liability Insurance (EPLI)
- Why do you need EPLI coverage
- What is covered under EPLI
- What is not covered under EPLI
- How much does an EPLI insurance cost?
- How to apply for an EPLI policy
- What are the best third party EPLI insurance carriers
So, here you go.
What Is An EPLI Insurance
An Employment Practices Liability Insurance (EPLI) insures businesses against claims made by employees who believe that their rights have been infringed.
The EPLI policy shall reimburse the employer for both – the legal costs in defending a lawsuit as well as expenses related to the judgment and settlements.
However, if there are any punitive damages that the employer is liable for, and/or any civil or criminal fines imposed by the courts, they may not be covered in the EPLI insurance policy.
ALSO READ:
An EPLI typically covers a number of different claims including
- Sexual harassment lawsuits
- Lawsuits against wrongful termination or disciplinary actions
- Discrimination (including those based on color, religion, sexual orientation, etc.)
- A violation of the employment contract
- Mismanagement of employee benefit plans
- Why Do You Need An EPLI Insurance
In general, an EPLI does not merely cover lawsuits from aggrieved employees. It also covers instances where a prospective employee files a case alleging that you denied them an employment opportunity that was rightfully theirs.
And oh, it also covers lawsuits from other stakeholders you work with in an organization. This is usually done as a separate agreement within EPLI called third party EPLI.
For example, you have a fallout with a vendor and call him a thief in public. But you have no evidence to prove this. This vendor could file a defamation lawsuit against you, or the organization, and EPLI could cover this.
Sounds absurd, right? Let’s take a look at a few examples.
EPLI Examples
Let’s say you interview several people for a sales job. You find one person who has good knowledge about your industry and might be a good fit. But you do not pick them because this job requires a lot of cold calls and you believe their Asian accent may be a barrier to successful closing.
The interviewee emails you asking for feedback on the interview and you helpfully point out that they need to polish their English accent. However, the interviewee regards this as discrimination and files a case against your organization. She has it in writing that you didn’t hire her because of her accent.
The EPLI can be helpful in this case. (On a side note, this is exactly why you seldom explain the reasons for not hiring a person. Be vague and send them a generic email).
In another case, let’s assume that a few thousand dollars go missing from your cash counter. CCTV footage clearly shows that there was no one, but this one employee, at the store when the money went missing.
You confront the worker and fire them. They lose their job and their house. However, it later comes to your notice that the act was committed by another worker. The first worker is rightfully angry and files a case against your firm for emotional distress and wrongful discipline.
These are just a couple of examples that explain how any business can be at the receiving end of employee lawsuits. An EPLI insurance is thus a must-have regardless of how big or small you are.
How Much Does An EPLI Insurance Cost
The cost of an EPLI insurance is kind of debatable because it is not always offered as a standalone product.
If you have a Businessowners Policy (BOP) coverage, your insurer may sometimes offer EPLI as an endorsement to the existing coverage. This may however change the terms under which you got the original BOP.
Our recommendation would be to go for a stand-alone EPLI coverage since this gives you better clarity on the premium you pay, and the coverage you get.
You can go for an endorsement over a BOP policy if you read the fine print and understand what you get.
Let me give an example where it can go wrong (or right, depending on how you look at it).
A typical BOP insurance covers incidents like fire, theft and loss of income besides lawsuits. Let’s say you are covered for one million per year.
Now, with an EPLI endorsement, your coverage may or may not change. But when you do need to claim, your coverage can come down depending on whether you have had other claims on fire or theft.
With a stand-alone EPLI insurance, you know for certainty that you are covered for a million dollars just for employment practices related lawsuits. This may work out more expensive for sure, but provides you with a lot more certainty and predictability.
There is another problem with getting an EPLI endorsement over your existing BOP. If you are in an industry where fire or theft is very common (a retail store owner sees thefts on a weekly basis), the premium you pay for EPLI may go up even though you have not really claimed anything here.
With a stand-alone policy, your premium is only impacted when you do face a related lawsuit (which, to be honest, is not too common).
Anyway, back to the question – what is the cost of an EPLI insurance?
If you are going for a BOP endorsement, then it starts at around $300-$400 per year.
Stand-alone EPLI coverages start at around $1200-$1500 per year for small businesses and go as high as $5000 per year in premium depending on your business size and industry.
EPLI Coverage
How much coverage you get for your EPLI insurance depends directly on the premium you pay (no sh*t, Sherlock, right!)
Firstly, EPLI does not cover all lawsuits that you think it covers. You should read the fine print to understand exactly what a certain policy covers and what it excludes.
Some policies have terms that automatically limit coverage during circumstances when you absolutely need them.
For example, is your organization going through a round of lay-offs? Some EPLI insurance providers have clauses that limit their coverage here simply because the risk of getting sued increases exponentially during this period.
Similarly, are you being acquired by another company? Check your EPLI coverage clauses because it may be limited around such events.
Anyway, to answer the question on how much coverage EPLI will get you, it’s typically between $1 million to $25 million.
Now here is the thing – an EPLI coverage typically includes your expenses related to attorney fee, settlements and judgments. However, not all EPLI insurances let you pick your own attorney.
Many insurers would choose their own attorneys to fight your cases. Since these attorneys may be in-house, the insurance carrier can potentially inflate the legal expenses and thereby bring down your actual coverage.
If you have your own in-house lawyer or prefer working with someone, make sure you request this requirement to be included as part of your policy.
In some cases, the insurance carrier may require the organization to have periodic review meetings with law firms to ensure that your organization is up-to-date as far as compliance goes. These expenses may be additional to the premium you already pay.
EPLI Exclusions
What does your EPLI insurance not cover? This is a tricky question because the answer is not immediately apparent. It’s easy to check the list of inclusions because you have it written in the policy. Can’t say the same for exclusions.
Generally speaking, an EPLI insurance is not here to cover your shortcomings. In other words, if you intentionally committed a wrong, you cannot expect EPLI to cover your losses.
So, if the courts direct you to pay a fine, you cannot file a claim to make this payment. Similarly, if a fired employee wins a legal battle and you are liable to pay him/her wages, this cannot come from the claim amount.
In addition to this, an Employment Practices Liability Insurance does not cover any physical injury endured by you or your employees, any damage to your property, or anything that happened outside the country.
Top EPLI Insurance Carriers
Looking for the best EPLI insurance carrier? Sorry to break the bubble, but there is no ONE provider who is the best. Each insurance carrier have their own pros and cons. Picking the best one among them is frankly up to you.
You should pick an insurance carrier based on your specific needs, like
- How much coverage are you looking for?
- What is the premium you are comfortable paying?
- Are you looking for a stand-alone EPLI insurance or a BOP endorsement?
- What is your industry?
- How many employees do you have?
- What is your annual revenue?
- Do you have an in-house attorney?
- What inclusions do you absolutely require?
- What exclusions are you comfortable letting off your cover?
Your choice should be based on the answer to these questions, and also others specific to your industry.
Frequently Asked Questions
Do I need EPLI cover?
If you run a business where you deal with employees, contractors or other stakeholders who are capable of suing you for employment practices related matters, then yes, you should purchase an EPLI cover.
Is Employment Practices Liability the same as Professional Liability?
There is definitely an overlap, but these two insurances are meant to generally cover different subjects. EPLI primarily covers issues related to employment practices and thus pertains to your employee matters. Professional liability, on the other hand, caters primarily to third party contractors and customers.
Like I mentioned earlier in this article, you could inadvertently call a contractor a thief and could invite a lawsuit from them. Depending on how your insurance policies are worded, this can be handled by both EPLI and Professional Liability insurance.
When should you go for an EPLI settlement?
Settlements are generally covered under EPLI. Honestly, you go for settlement if both parties agree to it. You should also talk to a lawyer and your insurer to know which works out cheaper for you.
Does EPLI cover wrongful termination?
In most cases. An employee who believes they were fired wrongfully can file a lawsuit against your organization and an EPLI should cover it. However, remember how I mentioned earlier that coverage can be limited during lay-offs? So if you were sued by someone who got laid-off, your insurance may not cover it.
What is a third party EPLI?
An EPLI typically pertains to lawsuits brought about your employees against you or your organization for one of the many reasons listed above. A third party EPLI is a separate insuring agreement that offers a similar protection against stakeholders other than employees like customers, contractors, vendors, etc.
Does EPLI Insurance cover wage and hourly claims?
Let’s say you run a restaurant with hourly wage workers – and you get sued by one of them because you did not pay them overtime. Now, an EPLI typically only covers salaried employees who are exempt from overtime pay. If you have a business where workers are paid hourly wage, then you must seek an endorsement for wage and hour claims on your EPLI coverage.