We strongly recommend that our clients obtain Employment Practices Liability Insurance (EPLI), which provides protection for an employer from the costs associated with alleged adverse employment actions. It is relatively inexpensive compared to the risk of not having coverage in place.
However, many employers believe that once this policy is in place it is a silver bullet in protecting them from all exposures related to employment-related lawsuits, and that is simply not the case. The purpose of an EPLI policy is to protect a business against the risk of heavy financial losses resulting from employment claims.
What Is and Isn’t Covered
EPLI provides protection for an employer against claims made by employees, former employees, or potential employees. It covers discrimination (age, sex, race, disability, etc.), wrongful termination of employment, sexual harassment, and other employment-related allegations. However, EPLI typically will not cover wage and hour claims, employee benefits claims, or claims under the WARN Act, COBRA, the National Labor Relations Act, and the Occupational Health and Safety Act regulations. Additionally, EPLI typically does not cover the costs associated with providing a “reasonable accommodation” under the Americans with Disabilities Act (ADA), and it may not cover certain types of claims for breach of employment contract or claims by independent contractors.
If you decide to purchase coverage, be sure your policy offer wage and hour defense coverage. The most "popular" type of employent lawsuit is wage related right now. There have been many class action suits over not paying for breaks, overtime, meals, etc. A standard EPLI policy will exclude hour and wage related claims, but some carriers will offer defense coverage for typically a sub-limit of $100,000. The cost to defend yourself could be enbough to put you out of business, so please be sure you have this important coiverage option.
When Is Coverage Denied?
Insurers commonly deny coverage based on a variety of legal technicalities, such as an employer’s failure to comply with EPLI reporting requirements, or a finding that a claim was not made during the coverage period or fell within an exclusion from coverage.
Tips for Purchasing or Renewing EPLI
- While EPLI coverage can be a valuable asset, employers should assess their goals with respect to purchasing and/or renewing EPLI coverage. The amount of coverage needed depends on the employer’s particular circumstances, such as the nature of its business, how many people it employs, and the number of facilities the employer operates.
- An employer should review its EPLI policy to confirm that the policy covers all potential claims. Certain exclusions, such as wage and hour claims, can carry considerable exposure for an employer, including potential class claims and claims for punitive damages.
- EPLI can vary widely, and employers can negotiate certain terms of EPLI coverage. With this in mind, employers may want to negotiate with the insurance carrier to include a “consent to settle” provision in order to prevent the carrier from imposing settlements without the employer’s consent. By reserving the right to control the settlement of claims, employers will have greater protections.
- Attorney fees and other defense costs are usually included within the limits of an EPLI policy. Insurers usually require you to select from an approved “panel” of attorneys for your defense. However, employers can negotiate in the policy the right to select legal counsel.
- If an employer is composed of several business units or entities, it is important to ensure that the EPLI policy covers all appropriate entities and individuals to ensure an employment claim is fully covered and does not fall within an exclusion. Employers should also make sure the EPLI policy covers all claims filed by applicants, employees, and independent contractors.
Employers should carefully consider whether to purchase or renew EPLI coverage and how to negotiate the best coverage possible if EPLI is purchased or renewed. BayRisk works with dozens of carriers and has placed this vital coverage for many of our clients. If you need assistance or have questions about Employment Practices Liaiblity Insurance, please contact us.