There’s no question, we live in a litigious society, which is probably why we get asked, “Should I get Employment Liability Insurance (or EPLI)?” on a fairly regular basis. One of CEDR’s goals is to empower you with the tools to prevent employment lawsuits through problem-solving and compliance. CEDR couples one-on-one guidance from HR experts in CEDR’s Solution Center with our custom-crafted handbook, making the methods we teach for addressing HR issues your first and best line of defense. However, if you are in business for any length of time, you may still need to defend against an employment law claim, and it would be nice to have disaster insurance.
In the case of EPLI insurance, though, the exclusions are so broad that it sometimes provides the insurance holder with a false sense of security. That means if you are thinking about EPLI for your business, you’re going to need to ask lots of questions.
Questions to ask about EPLI
There are several things to consider when thinking about if EPLI is right for your practice. When it’s time to research EPLI providers, consider the following:
- Is it affordable?- EPLI is often very expensive.
- Is it available? EPLI is not available in all states, and, even if it is, it’s hard to get approved.
- What are the exclusions? There are many.
- How much is the deductible? Expect it to be about $10K.
- Who gets to make decisions once you file a claim? Sometimes you have to turn control over to the EPLI company.
- Will I lose control when I file a claim? You may find yourself having to settle.
- Will I still have to go to court, provide documentation, and fight? The answer is, “Probably.”
Sobering Statistics
If after reading the last section, you feel like taking on EPLI insurance is a bad idea, consider 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
- 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. That’s the role of EPLI insurance.
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? As we mentioned earlier, lots! After all, insurance companies don’t make money by paying out claims. Generally, EPLI doesn’t cover 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-based 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.
There are other notable exclusions including policies purchased after the claim is filed. EPLI also doesn’t cover “intentional wrongdoing,” which, ironically enough, has been applied to accidental wrongdoing as in the case of an employer simply being unaware of the law or confused by the way an existing law is worded. It also can’t help you (and this is a big one) if a third party decides to file a lawsuit on behalf of your employee, as was the case when the EEOC filed a discrimination lawsuit against Cracker Barrel on behalf of ten former employees.
The important takeaway here is to be aware that EPLI doesn’t cover everything. 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, our goal here at CEDR is to have good policy in place for our members that prevents such claims from ever being filed!
Another typical EPLI benefit worth mentioning 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 else 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). 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.
So, is it worth it?
The general answer we give here at CEDR is the same with all insurance. If it is affordable and available, it never hurts to have a little insurance. In the case of EPLI insurance though, it is important for employers to understand there are a set of exclusions so broad that often, things you might want to be covered are not. On top of all that, EPLI Insurance is not available in all states, and, even if it is, the conditions your business has to meet for approval are so strict, you may not even qualify.
Here’s something else to consider. An employee who works at a legally compliant practice with excellent HR best practices in place isn’t going to be very appetizing to an employment law attorney or a third-party lawsuit from the EEOC. There are two ways to make sure employee-filed claims don’t happen in the first place, and CEDR members have access to both:
- Have your employee handbook written and reviewed by HR experts
- Reach out to an HR expert for clarification when employee-related issues arise.
If you’re a CEDR member with questions about any employment practice or want to learn how to prevent the violations that lead to lawsuits, you can reach out to the Solution Center either by opening a ticket or calling 866-414-6056 to speak to an advisor today.
