Umbrella symbolizing EPLI - employment risk insurance

Employment Practices Liability Insurance (EPLI) offers coverage options in case of lawsuits.

There’s no denying it: We live in a litigious society.

Here at CEDR, our mission is to empower you to prevent many employment lawsuits, and your CEDR-crafted employee handbook and HR policies put you in a much stronger position when employee disputes do come up. However, if you are in business for any length of time, you may still need to defend against an employment law claim.

Let’s review the following sobering statistics reported by insurance industry experts*:

  • Employee lawsuits have risen approximately 400% over the last 20 years
  • Of these, wrongful termination suits have risen more than 260%
  • 41.5% of these lawsuits were brought against private employers with fewer than 100 employees
  • When employee lawsuits go to trial, the employee wins more than 63% of the time
  • The average cost to settle an employee lawsuit out of court is $75,000 (including legal fees)
  • The average amount awarded to employees in jury trials is $217,000

Don’t assume that you’re immune from these costs just because you’re a small business! Small employers are the most vulnerable because they usually don’t have their own legal team, and they often do not have insurance in place to pay the high costs of a legal defense.

So, given the likelihood that you may eventually need to defend against some form of employment claim, it’s important to know what insurance options are available to help cushion this potentially devastating blow to your business.

You may wonder if your current liability insurance covers these exposures. The answer is an emphatic NO. Neither your business liability nor your workers compensation policy covers employment-related claims. The type of insurance you need in this situation is Employment Practice Liability Insurance, or EPLI.

EPLI is often provided to smaller businesses as an added endorsement to your business owner’s policy. Some companies also offer EPLI as standalone coverage.

What does EPLI cover, and should you get it?

EPLI provides protection against many kinds of employee lawsuits, including sexual harassment, discrimination, wrongful termination, breach of contract, emotional distress, libel and slander. Policies typically protect owners, managers, and corporate entities for actions of employees, managers, independent contractors, and shared or leased employees. EPLI will pay for or reimburse your company for costs incurred in defending a lawsuit, whether you win or lose the case. Losses covered generally include compensatory damages, plus legal fees and costs, after you pay a (usually large, $10K+) deductible. Lately, there is a trend towards more carriers covering punitive damages as well, but this is not a sure thing, so it must be inquired about.

What’s excluded? Generally, claims for bodily injury, intentional acts (assault, battery, criminal conduct), and privacy violations are not covered. Most importantly, EPLI protections almost always exclude wage and hour claims, or only provide limited coverage to include defense costs, not repayment of back wages. Wage and hour claims include all those relating to overtime, minimum wage, rest and meal periods, bonuses, and the like—and, unfortunately, they just happen to be the darlings of plaintiff’s lawyers. This is because the wage and hour statutes generally provide for automatic attorneys’ fees for violations, and the investigation usually involves doing the math, rather than the he-said she-said subtleties involved in discrimination, wrongful termination, or other such claims.

The important takeaway here is to know your EPLI exclusions. EPLI can help you in many other areas, but knowledge and prevention are still the best (and usually only) options to protect yourself from wage and hour claims. Of course, as a CEDR member, our goal is to help you prevent such claims in the first place!

Another typical EPLI benefit is access to skilled counsel in your area at discounted, insurance-contracted rates. The downside is that you lose the right to select your own counsel, and sometimes to make strategic decisions about your case. Still, many employers find the peace of mind that comes from knowing you have someone to call in the event of a claim to be well worth EPLI’s prices.

What should you consider when selecting coverage?

The cost of EPLI coverage depends on your type of business, number of employees, history of employment lawsuits, and other risk factors (usually including whether you have a professionally drafted and up-to-date employee handbook—which, of course, as a CEDR member, you do!). It also depends on the amount of coverage purchased. Our advice has always been to get as much insurance as you can afford. In general, a company with about 25 employees can expect to pay from $2000 to $4000 a year for a policy—far lower than legal fees to cover a lawsuit. The only way to know for sure is to request rate quotes from a variety of insurance companies. Asking your business liability carrier is usually a good start.

One last tip. Unlike standard general liability coverage, most EPLI is written on a “claims made” basis, meaning that the insurance must be in place when the claim is made, rather than when the incident occurred. If you are buying EPLI to replace a previous carrier’s coverage, be certain that the new insurer is aware of the previous coverage and agrees to accept any claims which might now arise from previous events. This is referred to as going back to the “retro date,” i.e., the date at which EPLI was originally purchased. A new carrier should assume coverage for “past sins” reported in the new policy period.

If you have questions about any employment practice, or how to prevent the violations that lead to lawsuits, call CEDR at 866-414-6056 and speak to an advisor today.

*Statistics from Jury Verdicts Research, “Employment Practice Liability: Jury Award Trends and Statistics,” as cited here.