Understanding Employment Practices Liability Insurance

If You Have Employees, You Need Employment Practices Liability Insurance

A company’s employees can be their greatest asset – and one of their greatest sources of liability exposures. When employees feel that they have been wronged in some way, lawsuits can follow. All companies with employees, no matter how big or how small, face this risk. Employment Practices Liability Insurance (EPLI) provides important coverage for many employment-related claims.

EEOC Laws and Protected Classes

Even in an at-will employment system, employers don’t have carte blanche to do anything they want. The EEOC enforces a handful of anti-discrimination laws that cover discrimination, harassment, sexual harassment, retaliation and equal pay. These laws include Title VII of the Civil Rights Act of 1964, the Americans with Disabilities Act, the Equal Pay Act and the Genetic Information Nondiscrimination Act.

The following classes are protected:

  • Age
  • Race
  • National Origin
  • Religion
  • Sex
  • Pregnancy
  • Sexual Orientation and Gender
  • Disability
  • Genetic Information

Noncompliance can come at a cost. In 2020, there were 5,471 EEOC settlements and monetary benefits of $333.2 million, not including monetary benefits obtained through litigation.

Lawsuits Against Companies

Current and former employees, and employment candidates can allege a claim against a company or an employee of a company, regardless of facts, concerning nearly any kind of perceived wrong that can be very expensive and time consuming to defend.

In the last 20 years, employee lawsuits have risen 400%. Most of the cost of the legal actions and lawsuits goes towards responding and defending the matter until it is dismissed or resolved. The average cost to a company is $160,000. The EEOC fields over 200,000 potential complaints each year. The average cost for an out-of-court employment claim is $75,000. The average jury award for an employment-related case is $217,000, and the average duration of an employment claim spans more than 300 days. The bottom line is, a company can do everything right and still end up with an expensive complaint that has to be dealt with until it resolves. Are you prepared for such a financial and time-consuming event?

When the employer is found to be at fault, settlements, awards and penalties can add to the costs.

Lawsuits involving employment practices are common. Here are just a few examples.

  • According to HR Morning, a Mississippi staffing agency will pay $40,000 over allegations of a pregnancy bias. A pregnant job applicant received a second interview, but the suit alleges that the company decided to hire less qualified, non-pregnant applicant instead.
  • Activision Blizzard has been sued for allegedly facilitating a culture of abuse, harassment and discrimination, according to the Verge. Employees at the company staged a walkout, and the SEC is investigating.
  • Three former employees are suing Kraft Heinz Co. for $30 million over alleged racist acts that include racial taunts and threats, according to Food Business News.
  • As companies try to create policies that foster diversity, claims of discrimination against white men have occurred. According to Bloomberg Law, recent high-profile cases include claims against YouTube, Google and Starbucks Corp.

Coverage Under Employment Practices Liability Insurance

According to the Insurance Information Institute, EPLI policies provide coverage for many types of employee lawsuits, including claims brought by employees related to sexual harassment and discrimination. Coverage is also available for claims related to hiring, firing, discipline and promotion, such as wrongful termination, wrongful discipline, failure to promote, deprivation of career opportunities and negligent evaluation. Breaches of employment contract and mismanagement of the employee benefit plan may also be covered.

It’s important to note that wage and hour claims are often excluded from coverage under EPLI policies. If an employee sues over allegations that the employer violated the Fair Labor Standards Act (FLSA) by not providing fair compensation, an EPLI policy may not provide coverage for the claim.

Obtaining Employment Practices Liability Insurance

EPLI coverage is often offered as a standalone policy. However, it may be possible to obtain some EPLI coverage through an endorsement on a Business Owners Policy or General Liability Insurance Policy.

When looking at policies, you should review the terms carefully so that you understand what events are covered and what exclusions or requirements exist. Also look at your limits and decide whether they are high enough for your needs, keeping in mind that lawsuits and court costs can be expensive.

Another issue to consider is whether the policy provides claims-made or occurrence-based coverage. Occurrence-based policies provide coverage for events that occur during the policy period, regardless of when the claim is made. Claims-made policies will only provide coverage if the claim is made during the policy period. Most EPLI policies are written on a claims-made basis. It’s important to make sure you have continuous coverage, and if you ever cancel your policy, you may need to purchase tail coverage to make sure you have coverage for claims made after cancellation.

EPLI Costs and Recent Rate Hikes

How much you pay for EPLI coverage will depend on many factors. These factors include things like the size of the company, the industry, the location and the number of employees.

The coverage limit you select will also have a big impact on your premium costs. A higher limit will cost more, but it will also provide more protection.

Your loss history and company policies will also impact your rates. If you have a history of claims, you can expect to pay more. The insurance underwriter will also want to see if your company’s policies are aligned with best practices for risk control.

Recently, EPLI rates have been on the rise. The Council of Insurance Agents & Brokers says that EPLI rates increased by an average of 8.9% in the second quarter of 2021. According to Insurance Journal, a report found that COVID-19 and #MeToo concerns have been contributing to the recent rate hikes.

Managing EPLI Risks

EPLI coverage provides important protection, but employers must still be vigilant about managing employment practices risks. This is important because poor practices may result in higher EPLI rates or even the denial of coverage. Additionally, even with insurance, it is always better to avoid claims and the reputational damage that comes with them.

Employers should make sure they are following best practices when it comes to following issues:

  • Screening and hiring new employees
  • Reviewing and promoting employees
  • Writing and having employees read and sign the employee handbook
  • Receiving, investigating and responding to incidents
  • Disciplining and terminating employees

Finding the Right EPLI Coverage for Your Company

EPLI policies can vary greatly. It’s not just the policy limit and rates that can differ from insurance company to insurance company. The terms of coverage can also vary. For example, there may be exclusions, reporting requirements, and even specific rules regarding settlements. If you ever have to file a claim, these differences can impact whether or not you have the coverage you need.

Your Hotchkiss Insurance team can help you review your EPLI coverage options so you can find the policy that is right for your needs.

The information provided on this website does not, and is not intended to, constitute legal advice; instead, all information, content, and materials available on this site are for general informational purposes only.