If you have a business with employees, you should consider carrying Employment Practices Liability Insurance (EPLI). In this Ultimate Guide, we'll define what EPLI is, what it covers—and doesn’t cover, how it differs from other liability insurance types, how much it will cost your business, and recommendations on where to find it.
What is Employment Practices Liability Insurance?
EPLI is a policy designed to assist businesses to cover damages and defense fees for employment-related lawsuits related to illegal employment practices.
An EPLI policy covers workers at all levels, including senior management and directors, as the “insured.”
Often bundled as a package with other management liability policies like a Professional Liability policy, an EPLI can provide a cost-effective solution for businesses, or be purchased as a standalone insurance product.
Common examples of EPLI suits are bodily injury, workplace harassment, discrimination, and wrongful termination, to name a few.
What is an Illegal Business Practice?
Illegal business practice is defined as an observable pattern within a company’s hiring history and/or workplace environment. Examples of illegal business practices include unsafe or inhumane working conditions, ongoing sexual harassment, unwarranted discipline, or even mismanagement of a company’s benefits plan.
How Does Employment Practices Liability Insurance Differ from Commercial General Liability Insurance?
One of the major differentiators between an EPLI and a Commercial General Liability Insurance (CGLI) policies is that EPLI is used on a “claims-made” basis instead of an “occurrence” basis.
With a claims-made policy, coverage is enacted when a claim is filed against your business—as long as you carry the insurance and pay the annual premiums. An EPLI will cover legal fees and damages up to the limit of the policy.
Another differentiator between the CGLI and EPLI is the latter's “shrinking limits defense provision.” This provision limits the amount an insurer will pay in damages after the legal fees are covered, again, up to the limits of your policy.
If damages go beyond the limits of the policy after the attorneys are paid, a business could be responsible for any damages not covered by the value of the policy.
With an occurrence policy, like a GCLI, defense and damages are covered, up to the policy limits, and sometimes into the future—as long as you were insured at the time of the event. Occurrence policies also accommodate for "long-tail events," where a lawsuit or claim may not occur right away.
Why Does a Business Need Employment Practices Liability Insurance?
Employee-related claims are on the rise. Aside from minimizing your business’s liability to work-related lawsuits, another compelling reason for carrying an EPLI policy is that whether you win or lose your legal fees are reimbursed.
There are many reasons to consider an EPLI policy for your business. But, a thorough understanding of what's covered in your policy is necessary when dealing with employees and employment law.
What Does Employment Practices Liability Insurance Cover?
Below is a sampling of the employment-related lawsuits an EPLI policy covers:
- Discrimination
- Sexual harassment
- Breach of employment contract
- Wrongful termination
- Defamation
- Invasion of Privacy
- Negligent evaluation
- Failure to promote, or deprivation of career opportunities
- Wrongful disciplinary action
- Infliction of emotional distress
- Mismanagement of employee benefits programs
What Employment Practices Liability Insurance Doesn't Cover
EPLI policies typically don’t cover:
- Punitive damages
- Wage and hour claims
- Class action lawsuits
- Civil or criminal fines
- Intentional acts
- Other liabilities covered by Workers’ Compensation insurance
- Immigration-related issues
Examples of Employment Practices Lawsuits
Here are a couple examples of lawsuits that can arise when illegal business practices occur in the workplace.
- A defense contractor lost its suit when an older worker sued for age discrimination. The jury ruled in favor of the employee after it was shown the company had exhibited a pattern and history of age discrimination, and retaliation, against older workers. The plaintiff was awarded damages for lost wages, back pay, and emotional distress in excess of $50M.
- A Midwest trucking company was found liable for their illegal business practices requiring all applicants, male and female, to perform a subjective isokinetic strength test. The test, which regularly screened out qualified female applicants, was deemed a form of sex discrimination and the trucking company was held liable for $500,000.
How Much Does Employment Practices Liability Insurance Cost?
The cost of Employment Practices Liability Insurance is dependent upon the type of business, the number of employees, and whether or not a company has ever been sued for employment practices before.
Moreover, if your business is considered an occupationally "high risk" environment, that factors into the price of your premiums.
Where Can You Get Employment Practices Liability Insurance?
EPLI is available from numerous insurance providers — brick and mortar as well as online. Cover Wallet and Embroker are two companies that carry this insurance.
Learn more about 12 other types of insurance, take a look at our Ultimate Guide to Selecting Business Insurance.
Disclaimer: Skip does not endorse, nor is affiliated with either of the companies mentioned in this article. They are referenced here for informational purposes only. Always conduct your own research before purchasing any insurance policy.
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