EPLI Explained

So, let’s dig in and talk about Employment Practice Liability Insurance, or EPLI for short.

What is it, what does it cover, and why do you probably need it?

Fundamentally, EPLI coverage protects an employer, like you from lawsuits that allege some wrongdoing when it comes to employment. Things like discrimination, harassment, wrongful termination, failure to hire, and more.

When I speak about EPLI coverage to a business owner I break the discussion down into two major headings of protection.

The first is defense costs – this is where the policy will pay for lawyers and related costs to defend you if you’re sued in an employment-related action.

This is critical because defending yourself in an employment action could cost you hundreds of thousands of dollars – it’s not cheap.

The second coverage bucket is for settlements – if you’re forced to settle an employment lawsuit the policy also will pay for those costs in addition to defense costs.

So, who can sue you for employment-related claims?

1. Current Employees and former employees, for numerous types of allegations I’ll describe in a minute.
2. Job applicants – who may feel they were discriminated against in the hiring process
3. Independent contractors who believe they were treated unfairly or when they believe their contracts were violated.
4. Vendors & Customers who may allege a form of discrimination or harassment
5. Finally, a group of employees who may form a “class” and pursue litigation as a class action against an employer

What are the common allegations in an employment-related lawsuit?

1. Discrimination – employees and others may file lawsuits for discrimination based on a “protected characteristic” such as race, gender, age, disability, or sexual orientation.
2. Harassment – this can include verbal or physical harassment, sexual or not, and hostile work environments.
3. Wrongful Termination – if an employee believes they were fired for an illegal reason or for no valid reason.
4. Retaliation – an employee may sue if they think they are being punished or treated unfairly because they reported the employer to a regulatory agency or other authority for improper activities.
5. Breach of Contract – these lawsuits arise when an employee believes that the employer has cheated them, or not delivered on pay raises or other benefits that were promised to them.
6. Whistleblower Claims – similar to retaliation, these claims stem from an employee reporting the employer to a regulatory authority for illegal activities and then being harassed for that.
7. Finally, wage and hour disputes and may be the fastest-growing area of litigation for employers. This is when an employee or group of employees sue an employer for failing to pay them properly, or account for overtime, or violate minimum wage rules. Insurance for wage and hour claims is very limited and needs to be specifically endorsed to an EPLI policy and only covers defense costs in these types of claims.

There are of course other types of claims and allegations made against employers which change from state to state and jurisdiction to jurisdiction based on different laws and regulations in different areas of the country.

Some employers may ask: What if you don’t have EPLI insurance, would business insurance or an umbrella policy pay these types of claims?

No. Unfortunately, this is a common misconception. Your business owners’ policy, your general liability policy, and your umbrella policy do not cover employment-related claims which is why EPLI insurance is needed by most employers.

If you don’t have it the costs of defending yourself come directly out of your pocket.

There is one exception to this and in some business owners’ policies you can endorse a small limit of EPLI coverage, but that is often not very broad protection and the limits are often very low, so it’s not a viable option for many companies in my opinion.

There are three myths that business owners have and why they don’t buy EPLI coverage.

The first is: Just because you are a private family-run business you can’t or won’t be sued. The fact is that more than one in four private employers have experienced employment-related lawsuits in the past three years according to a Chubb Private Company Risk Survey. On top of that the average reported loss is over $100,000.

The second is that employers think that because they have a great employee handbook they won’t be sued. Yes, it’s great to have good employment policies and handbooks in place but no, that won’t stop a lawsuit.

Third, I’ve had employers say “I’ve never had a problem in the past, I’m never going to be sued” this is a dangerous myth – consider yourself lucky you’ve never been sued, but that does not bar the potential for being sued in the future.

Here’s the bottom line

Employers face a dizzying array of federal, state, and local laws and regulations when it comes to employment and they all can trigger potential lawsuits from employees, job applicants, independent contracts, and customers.

It doesn’t matter if you have two employees or 200 or 2000, EPLI should be an important coverage consideration for your firm.

If this is something you’d like to learn more about and has a more in-depth conversation about the coverage and costs, let’s have a conversation.

When we speak I promise no hard-core selling or other nonsense – just a conversation to see if we’d be a good fit for you and your company.

Thanks!