In today’s litigious society, businesses of all sizes face the looming threat of lawsuits from a variety of sources. In this article, we’ll focus on a sizable risk often overlooked and not insured by many organizations, and that is potential third-party liability EPLI claims arising from employment-type risks. Specifically discrimination, harassment, and sexual harassment as well.
Even employers who diligently follow the law can find themselves entangled in legal disputes with employees or customers, and without the right protection end up in court and paying significant sums out of pocket in defense and settlement costs.
While employment practices liability insurance (EPLI) provides protection to companies against employee-initiated lawsuits, there is often a gap in coverage when it comes to employment-like claims that are brought by non-employees.
This is where third-party employment practices liability insurance comes into play. In this article, we will delve into the significance of third-party EPL coverage and its benefits for businesses.
For a quick summary, you can also view this video:
Understanding Third-Party Liability EPLI (Employment Practices Liability Insurance)
Third-party employment practices liability coverage is a separate insuring agreement or endorsement made to an Employment Practice Liability Insurance or EPLI policy. The intent is to safeguard a business from lawsuits brought by non-employees, which can include customers, clients, vendors, and visitors.
The standard Employment Practice Liability Insurance or EPLI policy focuses on employee claims. Those types of claims typically will allege harassment, including sexual harassment, discrimination, wrongful termination, failure to hire, and other wrongful employment acts. Adding third-party coverage extends protection to allegations of wrongful acts committed by an insured organization against non-employees.
Filling the Insurance Gap
The need for third-party EPL coverage arises from the fact that commercial general liability (CGL) policies typically exclude coverage for harassment and discrimination claims, which are commonly alleged by third parties.
While standard EPLI policies cover claims by employees, the absence of coverage for non-employee claims creates a potential gap in insurance protection for businesses.
Third-party EPLI bridges this gap, offering coverage for discrimination claims based on race, religion, sex, age, national origin, disability, pregnancy, and sexual orientation, as well as claims related to harassment.
Benefits of Third-Party Liability EPLI Coverage
Comprehensive Protection:
Third-party EPLI coverage provides businesses with comprehensive protection against allegations of wrongful acts committed by employees against non-employees. This includes claims of discrimination and harassment, which can lead to costly legal battles and reputational damage.
Mitigating Financial and Emotional Stress:
Defending against lawsuits can be financially and emotionally draining for businesses. By having third-party EPLI coverage, businesses gain peace of mind knowing they have financial protection in place to handle legal expenses and potential settlements.
Addressing Industry-Specific Risks:
Businesses that have frequent contact with the public, such as hotels, restaurants, medical facilities, schools, and entertainment venues, are more susceptible to third-party claims. Third-party EPLI coverage is particularly beneficial for these industries, providing them with tailored protection against the unique risks they face.
Ensuring Compliance with Laws and Regulations:
With the evolving legal landscape, businesses must be proactive in addressing discrimination and harassment issues. By obtaining third-party EPLI coverage, businesses demonstrate their commitment to compliance with equal employment opportunity laws and regulations.
Risk Management and Prevention:
Implementing policies and procedures that address EPL exposures arising from employee interactions with non-employees is crucial. Third-party EPLI carriers often require businesses to have these risk management measures in place, including training programs and reporting mechanisms for handling third-party claims.
Real-Life Examples and Case Studies
Several high-profile cases highlight the significance of third-party EPLI coverage.
In one instance, a gender discrimination lawsuit was filed against an exclusive men’s country club for denying membership to women. The ensuing legal battle demonstrated the potential financial impact the legal costs of such a claim can have on an organization.
Another example involved a property manager who discriminated against a prospective tenant based on his Middle-Eastern descent. The tenant sued the property manager for civil rights violations and discrimination based on national origin.
In another case, involving a restaurant, a customer filed a lawsuit alleging sexual harassment. Here, a restaurant employee was accused of touching the plaintiff customer without their consent and the resulting lawsuit was not only expensive to defend against but also extremely damaging to the restaurant’s reputation within their community.
These cases illustrate the importance of businesses being prepared for third-party claims and the role third-party EPLI coverage plays in providing financial protection and legal and defense costs.
The Role of Education and Risk Management
Given the increasing frequency of third-party EPL claims, education, and sensitivity training plays a crucial role in mitigating risks. Businesses should develop policies and procedures that address both employee and third-party EPL exposures.
New employee orientations should include training on EPL issues, and regular updates should be provided to existing employees, especially supervisors who can play a significant role in preventing and addressing third-party claims.
Companies of all sizes often struggle with managing and training employees on employment-related risks and this is where a skilled insurance broker can assist in helping develop or providing resources that can be used in building a solid training process or plan.
Depending on the size of your company it may make sense to bring in outside experts to conduct training on a regular basis as well to be sure you comply with state and local mandates and laws.
Finally, when it comes to training, documentation, and development of best HR practices, companies of all sizes can benefit from bringing in an outsourced HR expert on a regular basis for training and reinforcement of best practices.
Industries that can most benefit are those with high turnover, and where training may be inconsistent, as well as those industries that have high exposure to the general public. This includes retail, restaurants, hotels, and other hospitality firms, professional services, and healthcare.
Understanding the Depth of Coverage
It is important for businesses to review their EPLI policies to understand the scope of coverage for third-party claims. Some policies may define a claim as a “demand for monetary damages,” which may not fully address non-monetary claims, such as lawsuits filed as those seeking reasonable accommodations under the Americans with Disabilities Act (ADA). Businesses should ensure that their policy definitions encompass all potential claims to avoid coverage gaps.
Understanding your policy’s coverage limits, sub-limits, retentions or deductibles, and any limitations on defense costs is critical to providing you the peace of mind and security you desire.
This is where the value of a skilled broker comes in to help you better understand your coverages and potential gaps.
Conclusion
Third-party employment practices liability insurance is an essential component of comprehensive insurance coverage for businesses. By addressing the gap in coverage for claims brought by non-employees, businesses can protect themselves from the financial and reputational risks associated with discrimination, harassment, and other wrongful acts.
With proper education, risk management measures, and the right insurance policies and coverage in place, businesses can navigate the complex landscape of employment-related claims and ensure the well-being of their employees, customers, and overall organizational success.
Getting your protection right is our goal, and as you can see from this article, there is a level of complexity to EPLI and third-party liability that requires a high level of expertise to execute upon. An off-the-shelf policy may not be in your best interest, especially if it was purchased online with little to no human interaction.
Employment Practice Liability Insurance requires careful consideration, and customization to fit the unique risk issues your company faces, and that’s where our expertise comes in.
As an experienced broker, we are equipped with the knowledge, skills, and market access to guide you through this process and get you the protection you need for peace of mind.
Want to learn more?
Reach out to us today and let’s start a conversation. We promise, no hardcore selling or pressure. Just a conversation to see if we’re a good fit for you and your business. Our goal is to protect what matters most to you.
