Employment Practices Liability Insurance - A Must for Every Business

No matter how positive the work environment and how equitable the regulations are, there is no assurance that a worker will not take legal action against the employer. Therefore, it's vital to have adequate insurance coverage to protect your business from financial losses arising from employee lawsuits. This is where Employment Practices Liability Insurance (EPLI) comes in.

Understanding Employment Practices Liability Insurance

Employment Practices Liability Insurance (EPLI) is a type of insurance that protects businesses from financial losses resulting from lawsuits filed by employees. These lawsuits can be based on a wide range of claims, including breach of contract, discrimination, emotional distress, negligent handling of employee benefit plans, inadequate career opportunities, and more.

EPLI can be obtained as a standalone policy or as an amendment to an existing business owner's policy (BOP). Depending on the cost of your EPLI coverage and the limitations of the policy, you could receive partial to full reimbursement for defending your company in a lawsuit and/or paying claims.

The limitations of BOP insurance

It's essential to understand that relying solely on BOP insurance may not be sufficient to meet your needs. This is because most insurers limit payouts to $5,000. Depending on the severity of the employee's claim, this amount may not be enough to cover the legal costs and claim payments, leaving you with a significant financial burden.

Moreover, even if you have a BOP policy, it does not automatically cover you for employment practices liability. You will need to add an endorsement to your policy to have such coverage.

The risks of not having EPLI coverage

Many business owners assume that they do not need EPLI coverage because they’ve never had an employee file a lawsuit against them. However, the reality is that employee lawsuits are on the rise, and the cost of defending your business against such lawsuits can be astronomical. Even the most trustworthy employees can make workplace claims, so it's essential to be prepared for such scenarios.

To understand the importance of EPLI coverage, let's look at some examples of employee claims that it can cover:

• Sexual harassment: An employee accuses a manager of sexual harassment and files a lawsuit. EPLI can cover some or all of the legal costs and claim payments.
• Discrimination: An employee files a lawsuit, claiming that they were not promoted or hired for a position based on their race, gender, or age. EPLI can cover the legal costs and claim payments.
• Wrongful termination: An employee files a lawsuit, claiming that they were terminated unfairly. EPLI can cover the legal costs and claim payments.

Furthermore, some employees may start with "small claims" that businesses may settle to avoid litigation. Multiple small claims can add up quickly, making it vital to have proper insurance coverage instead of delaying obtaining EPLI or a BOP coverage.

How to Choose the Right Insurance Coverage for Your Business Needs and Budget

Even though gauging your company’s level of risk may be challenging, you should have a good idea of how likely you are to face an employee lawsuit before selecting an insurance provider. Some other steps to consider include:

• Determine how robust you need your EPLI to be. For example, are you comfortable with coverage limits and smaller payouts, or are you willing to pay more for maximum business protection?
• Check the Better Business Bureau for a rating on the insurance company you're considering, and read as many online reviews as possible.
• Speak to an insurance agent or broker to fully understand your options and coverage limits.

Given the increasing frequency of lawsuits, having EPLI coverage has become a necessity for every business. Don't leave your business assets at risk; speak with an agent or broker today about obtaining the right insurance coverage.