Top Four Things Every Employer Should Know About Employment Practices Liability Insurance (EPLI)
1. Every Employer Is At Risk
An employer can do everything right and still be hit with an employment-related lawsuit. Employment Practices Liability Insurance (EPLI) is critical to protecting employers from unforeseen defense expenses—which can add up fast and have a significantly negative effect on the employer’s bottom line.
I have seen employers with strong HR departments, written programs, and regular training that still incur a claim. In fact, depending on where they are located and the number of employees they have, the likelihood of claims activity is nearly certain.
What You Get with EPLI:
EPLI provides both defense and indemnity coverage for employers when they receive a complaint or lawsuit alleging a wrongful act in the workplace. From the moment employers begin the pre-hiring process until the final exit interview, they are vulnerable to suits alleging discrimination, sexual harassment, wrongful termination, employment misrepresentation, wrongful discipline, or failure to promote. EPLI coverage is like “human resource malpractice” insurance.
2. Always Enlist An Insurance Professional And Carefully Review Policy Provisions
It is important to know that EPLI is a non-standard coverage, so each insurance carrier will have a unique coverage form with their own terms, conditions, and exclusions. Because these policies can vary from carrier to carrier, it is important for employers to work with an insurance consultant who understands these policies and the employer’s unique situation.
When working with our clients, we make sure to discuss the differences in the EPLI policies available and help our clients choose the policy that will best fit their needs. For instance, nearly all EPLI products exclude wage and hour claims. However some policies may contain a defense-only sublimit. We try to ask for that endorsement from our insurance underwriters, and we discuss the exclusion in detail with our clients. Also, policy provisions that define a claim and stipulate how and when it should be reported should be critically reviewed. Nearly all coverage forms are “claims made” and defense expenses will reduce the limit of liability. If you have a $1,000,000 limit and the carrier has to spend $300,000 to defend a claim, then there would only be $700,000 left for the actual settlement or judgment.
3. EPLI Claims Are On The Rise – Beware Of Retaliation
Rather than filing a complaint directly with their employer, it is important to know that employees can also make a complaint directly with the Equal Employment Opportunity Commission (EEOC). The EEOC is charged with enforcing civil rights, ADA, the Equal Pay Act, and the Age Discrimination Act. In the last 10 years the number of charges made to the EEOC has increased 24 percent. Last September the EEOC released a performance report indicating it had its busiest year ever with the agency securing more than $365 million in monetary relief through its administrative enforcement activities.
The EEOC reports that 40 percent of the claims it sees are related to retaliation. According to Monitor Liability Underwriters, one of our key insurance carriers, wage and hour filings outnumber all other workplace class actions with an average defense cost of $100,000 per claim. Wage and hour claims allege that an employer has failed to pay overtime wages owed to an employee. Within the last 5 years there has been significant, high-profile class action litigation in this area. The bottom line is that employers have an increasing exposure for these types of claims.
4. Use Value-Added EPLI Resources To Reduce Your Risk
One real benefit to employers who buy this coverage is the ability to access free loss prevention services which are pre-arranged by the insurance carrier. Make sure your HR staff know these resources exist. This often means a toll-free Q&A hotline with access to labor attorneys or HR specialists. For smaller employers who have a limited human resource budget, this can be really meaningful when a potential claim or situation arises. Many policies will provide on-line resources as well and that can include the manager’s mandatory harassment training required in many states.
One of our clients recently had an EPLI claim where an employee alleged sexual harassment by a co-worker. Going through the claims process and interacting with defense counsel assigned by the insurance carrier has been an eye-opener for this employer. It appears that the outcome of this claim will be favorable; in addition, we believe our client is in a better place because of the interaction on the policy. They have become more proactive in their policies and procedures and are now more committed to training and loss prevention. Remember, developing a strategy early on can significantly impact the outcome of an EPLI claim.
We have also helped many employers reduce the cost of their EPLI policy by implementing larger deductibles and retention options. If the client is already self-insuring the exposure, it makes a lot of sense to retain some of the risk and reduce the costs—and provide the strategies, procedures, and training necessary to mitigate EPLI claims early.