Overview
Organizations constantly navigate risk. From the potential of cyber incidents to fires and natural disasters, businesses need comprehensive insurance coverage to cover all potential eventualities. However, one of the largest risks businesses may face comes from other people , whether employees or external parties. In fact, small businesses are three times more likely to face employee lawsuits than they are to have a fire. Third-party lawsuits for matters such as harassment are also of concern.
Employee lawsuits can be disastrously expensive without business insurance, especially for small businesses. Organizations can and should take steps to minimize potential losses that might stem from employee lawsuits. One of these steps might include purchasing Employment Practices Liability Insurance (EPLI). This insurance, also known as EPL insurance, can help give business owners the assurance that their business can survive a lawsuit. Read on to find out what EPLI is and why your clients need it.
What is Employment Practices Liability Insurance?
EPLI is an insurance policy that provides coverage against employee and third-party lawsuits claiming an organization has violated their legal rights. An EPLI policy provides protection against employee claims and may include seasonal or temporary workers. It also protects against third-party claims, such as claims from a customer.
The insurance coverage applies regardless of the veracity of the claim. This is a major benefit of EPLI coverage since companies often must pay defense costs regardless of a lawsuit’s outcome.
What does EPLI Insurance cover?
The wide scope of EPLI covers a number of potential claims. Among the most frequent claims are those related to discrimination, harassment, or wrongful termination.
Discrimination
Employees can file discrimination claims for any negative action a business takes based upon protected classes, including age, sexual orientation, race, religion, disability, or pregnancy. For example, an employee might request time off for religious observance. Two weeks later, the manager starts reducing the employee’s hours at work. When asked why, the manager responds with negative stereotypes about the religious group. EPLI covers costs associated with a potential employee lawsuit stemming from this situation.
Harassment
Workplace harassment is broad in scope and includes any activity that may make an employee uncomfortable. Workplace harassment claims can be triggered by actions from supervisors, other employees, or even customers. Harassment claims can also tie into discrimination claims, although this is not a requirement.
An example could be an employee making a lewd joke during a meeting that makes another employee extremely uncomfortable. Let’s say the employee talks to a member of the management team who shrugs it off and doesn't take action to address the employee’s concerns. Based on the joke’s severity and other factors like how often instances like this occur, this could be the basis for a lawsuit. EPLI policies could provide coverage in this situation.
Wrongful termination
Like harassment and discrimination, wrongful termination covers a broad scope of potential claims. Some types of wrongful termination include:
Retaliation, such as being fired for engaging in legally protected activities. Such activities could include filing a sexual harassment claim or reporting a manager for wrongdoing.
Violations of public policy, which could include being fired for taking time off to serve in the military or on a jury.
Violation of written promises, such as any terms outlined in the employee’s job contract.
A hypothetical wrongful termination claim could involve a worker with an at-will contract receiving a note from management assuring them their job is secure. The employer then ends up firing the worker without cause the following week. In this scenario, the worker could file a lawsuit for wrongful termination in violation of a written promise. EPLI covers the costs associated with this situation as well as any other type of wrongful termination claim.
Other claims
Due to the broad nature of EPLI coverage, not all claims fit into the most common claim types. Fortunately, EPLI insurance covers a range of additional claims your client may face, including:
Invasion of privacy
Breach of contract
Retaliation, which can go beyond wrongful termination and include docked hours or inopportune scheduling of hours
Wage and hour disputes
Overtime violations
Emotional distress
Failure to promote
Employee benefit plan mismanagement
Negligent evaluation, supervision, or appraisal
HR negligence
Defamation
Illegal background check
Why is it important to carry EPLI?
Carrying EPLI insurance is key to comprehensive risk management. The wide range of covered incidents transfers risk from the business to the insurance company. In addition to EPLI’s broad coverage, there are numerous other reasons to purchase a policy, which we’ll detail below.
Lawsuits on the rise
EPLI lawsuits have increased by 400% in the last two decades. Social justice movements such as #MeToo have partially driven this rise, in addition to greater recognition and understanding of employee rights.
Claims are expensive
In 2020, the average jury award for EPLI claims was $217,000. For employee lawsuits settled out of court, organizations still paid an average of $75,000. In cases when a business is found not guilty, it is still responsible for its legal fees. As such, even a business that has done nothing wrong can still face the prospect of substantial legal fees from an EPLI claim. Fortunately, EPLI would still cover these costs.
EPLI claims can happen to any company
EPLI claims can impact any business of any size. Any company could face lawsuits and allegations, and EPLI claims can be especially prominent among smaller businesses. These businesses may lack the expertise and experience to properly oversee recruiting, hiring, managing, or firing employees, subjecting them to EPLI claims. In fact, small businesses are almost exactly as likely to face an EPLI claim as larger organizations. Small businesses with under 100 employees are estimated to account for 41% of all EPLI claims. Given how slim small business margins can be, an EPLI claim could be an existential risk.
You might not be currently covered
The majority of general liability and umbrella policies typically exclude EPLI coverage. As such, unless explicitly stated, most businesses lack coverage through their general policies. Additionally, even when general liability and business owner’s policy (BOP) insurance includes EPLI provisions, the coverage is typically insufficient. Only an estimated 3% of businesses with under 50 employees appear to have purchased any form of EPLI insurance. The other 97% likely do not have any insurance protection should the worst occur. Without the proper coverage, EPLI claims could be devastating for a business.
COVID-19 adds uncertainty
Small businesses face new types of uncertainty due to COVID-19. Employers may face employee lawsuits claiming that COVID-19 vaccine mandates are a form of discrimination. On the other hand, businesses may also face employee lawsuits claiming that employer negligence was responsible for them contracting the virus.
Either situation may be especially prevalent if the employer recently forced employees to return to the office. While these situations are likely to become more common in the future, EPLI may cover claims related to both.
Prepare your clients for EPLI claims with Coalition
EPLI covers legal fees and settlements a business may face from employee and third-party lawsuits. As such, EPLI policies are integral to any business’s risk management practices. As businesses take additional measures to reduce the likelihood of claims, EPLI provides a fallback in case these measures fail to prevent lawsuits. This is especially helpful as the number of EPLI claims — and their costs to businesses — continue to rise nationwide.
Fortunately, Coalition’s Active Employment Practices Liability insurance provides robust EPLI coverage. Active Employment Practices Liability expedites quoting by collecting live data on the company’s technology, financial, HR, and other risks. A pre-claims D&O and EPL hotline are also available alongside best practices guides and training. Additionally, Coalition offers active monitoring and alerting, which provides alerts about public relations events and state law changes. Coalition’s Active approach to Executive Risks helps position you as a trusted advisor for all your clients’ EPLI concerns.
Protect clients against dynamic risks with Employment Practices Liability Insurance offered by Coalition
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Insurance products offered by Coalition may be written on behalf of third-party carriers including Allianz Group* (A.M. Best A+ rating), Arch Specialty Insurance Company (A.M. Best A+ rating), Ascot Group** (A.M Best A rating), Fortegra Group (A.M. Best A- rating), Lloyd’s of London (A.M. Best A+ rating), Swiss Re Corporate Solutions*** legal entities (A.M. Best A+ rating), Vantage Risk Specialty Insurance Company (A.M. Best A- rating), and Chaucer Insurance Company DAC (A.M. Best A rating).
