Employment Practice Liability Insurance – often called EPLI
It may be on your mind, or you’ve thought about it in the past, or someone has recommended that you have it. What is it, what does it cost, how do you get it and most of all do you need it as a small business owner?
In this article, I’m going to answer those questions and more.
So, Employment Practice Liability Insurance? Let’s start with what it is and what it does.
EPLI is a specialized form of liability insurance that protects a business and the leaders of that business from claims that can arise alleging some form of a wrongful employment act.
The common ones that come to mind are wrongful termination, discrimination, harassment, hostile work environment, among many others.
This form of coverage pays for the legal defense costs you would incur if you’re sued, or threatened with a suit or a regulatory action arising from employment-related acts. Legal costs to defend your company from these types of lawsuits can be exorbitant and run anywhere from a minimum of $15,000 to hundreds of thousands of dollars depending on the type of claim and where you’re located. The policy also pays for any settlement amounts you owe as well.
Important to note, that your business owner’s policy, your general liability policy, and your umbrella policy will not respond to claims of this nature unless they are endorsed to a policy, which we’ll discuss in a moment. But, for now, just assume that you don’t have this protection unless you have a separate policy for it.
So, do you really need Employment Practice Liability Insurance?
Well about one in four private companies have experienced an employment-related claim in the past three years, so statistically speaking there’s a good chance you’ll experience a lawsuit like this.
The more employees you have, the greater the chance of a claim.
So, the answer is that you do need coverage. Again, statistically speaking.
And the average claim cost for an EPL-type claim is around $103,000. Those two statistics come from Chubb Insurance Company’s private company risk report.
What are the types of claims that happen to small businesses?
Here are just a few:
– age, sex, race, religion, national origin, and disability all top the list of discrimination claims
– sexual harassment often makes the news, but any perceived abusive behavior towards employees can result in harassment claims, and it’s not always the employer or boss that is accused of harassment, it can result in managers, supervisors, and other employees who trigger harassment claims.
Wage & Hour Disputes
– we’re going to talk about this more in a minute, but when errors are made in payroll, employees can accuse employers of wage theft, and federal and state labor authorities take these claims very seriously, and the penalties under wage and hour claims are extreme.
How do you get covered?
There are two different means of getting EPLI coverage.
For truly small businesses – like 5 or fewer employees you can purchase an extension of coverage or endorsement for EPLI on many business owners’ policies or BOP policies.
Be aware that both the scope and limit of coverage are limited. It’s not the best way to get protection, but it’s better than nothing.
Different insurers have different options here but you’re going to see most insurers offer $50,000 to $75,000 of EPLI coverage maximum.
Premiums are pretty cheap, but you won’t get the breadth of coverage like a stand-alone policy. My other suggestion is that if you go this route you reevaluate this each you and step up to a stand-alone EPLI policy when your budget permits.
So the second option then is a stand-alone policy or an EPLI policy that’s part of your D&O Insurance. I’m going to treat either of these two options as the same thing because whether you buy just an EPLI policy or combine it with your D&O, you’re essentially getting the same form of protection.
The advantage here is that you can purchase higher limits, broader protection and customize the policy form which you can’t do on a BOP policy.
Generally, the minimum policy limit we sell is $1M and we can go up to the tens of millions of dollars for larger firms.
What options should you be looking for in a stand-alone EPLI policy?
If your budget permits and you’re ready to purchase a stand-alone EPLI policy, here are options you should be looking for:
- Third-Party Liability – Third-party liability protects you from employment-related claims like harassment and discrimination from non-employees, like customers.
- Wage & Hour Defense Protection – We mentioned earlier that wage and hour claims are continuing to rise and while an EPLI policy won’t pay for damages, most policies can be endorsed to provide a sub-limit for defense costs – be sure to buy up to the highest limit you can as these are expensive claims to defend against.
- Duty to Defend protection – most small businesses need what’s known as the duty to defend protection, this means when you report a claim to an insurance company it’s their duty or obligation to defend you. You don’t have to go out and hire an attorney and manage the defense process.
What does EPLI Cost?
EPLI costs are going to be determined by several factors, including:
Number of employees
The industry you’re in
Your geographic location
Your HR policies
Your prior claim history
The limits of coverage and retention you purchase
As you can see, with the various underwriting factors that go into pricing a policy it’s impossible to ballpark premiums here, and I would be suspicious of any website that does give average to median prices since I have found them to be totally unrealistic and unreliable.
How do you find out about EPLI costs?
You can fill in forms, and try and do it yourself, and then get a quote for something you’re not sure is right…. or you can contact us and work with an expert in the field of EPLI.
One thing I’ll promise is no pressure, just honest advice, and guidance to help you get the best value for your premium dollar.
My contact info is in the description box below and I look forward to speaking with you about how we can help you get the right EPLI protection for you and your company
The bottom line is that if you’re concerned about employment-related lawsuits, don’t wait, don’t procrastinate – make the call, drop me an email, and let’s talk about what’s on your mind and get this done so you have peace of mind.