What is EPLI or Employment Practice Liability Insurance?
Employment Practice Liability Insurance or EPLI for short is a form of management liability coverage intended to protect a company and its decision-makers from claims which arise from employees and third parties alleging wrongful employment acts. Commonly these wrongful employment acts are wrongful termination, discrimination, harassment, hostile work environment, failure to hire, failure to promote, etc.
Many of the claims brought by employees against their employers will cite violations of laws and protections of several federal, state, and local laws, codes, and ordinances such as the Title VII of the Civil Rights Act, the ADA, The Age Discrimination in Employment Act, etc.
EPLI was first created in the early 1990s and has become an important part of many businesses’ protection portfolios. As litigation around employment increased, so did the need for insurance coverage. Early adopters of employment liability protection were, of course, large corporate buyers. Still, today even small businesses with as few as one or two employees purchase EPLI to protect the firm and the owners from claims which can be very expensive.
In fact, over 40% of EPLI claims are made against small private employers with less than 100 employees, and you don’t need to lose an employment lawsuit for the case to be expensive. Defense costs alone for a small business will be tens of thousands of dollars, and for larger firms, the defense can easily run into 6 figures. In the middle market, the median award in an employment suit is about $250,000, with defense costs running another $150,000. These are numbers that most firms, even in the middle market, can’t afford to bear out of pocket, which is why employment practice liability insurance is needed for firms of all sizes.
A stand-alone EPLI policy will write a stand-alone EPLI policy or one written in a management liability portfolio on a claims-made basis. It will usually have defense costs contained within the limit of liability. That means that defense costs will decrease or even deplete the amount of protection you have, so careful consideration must be made about how much limit you purchase. Many small firms purchase limits of $1M, but larger firms with more than 100 employees will often purchase higher limits to provide greater protection to the firm and its leaders.
Another interesting point regarding defense costs in an EPLI policy is that a policy may be a “duty to defend” policy – meaning that the insurance company has a duty and obligation to provide defense for covered claims to the insured. In a duty to defend the policy, you report a claim to the insurer, and they assign an attorney from their panelist to defend you. The opposite defense provision in a policy is a non-duty to defend, which of course, means that the insurer does not have the duty or obligation to provide you a defense attorney. This is not necessarily a bad thing. Larger firms often prefer non-duty to defend to have their own attorneys handle the claim and be reimbursed for the costs of doing so.
A final element of an EPLI policy I want to talk about today is retention. Retention is like a deductible in that it’s an amount of money the insured will pay before the insurance company making any payments in a claim. Most EPLI policy retentions start at $10,000 but can run up to $250,000 or more for larger firms.
Like all business risks, controlling and managing employment risk is paramount to preventing claims. While it’s important to have coverage for those claims that do occur, it’s much less expensive to prevent a claim than having your insurer pay for one. As I just mentioned, you – the insured will pay for the first portion of a claim in your retention, but you’ll also pay for claims later in higher premiums down the road.
Key risk control elements include:
- An employment attorney clearly writes workplace policies and procedures.
- Proper training for employees, managers, and other leaders.
- Careful hiring processes, including clear job descriptions.
- Regularly scheduled employee reviews.
- And proper file documentation of all employment-related practices.
Have questions regarding employment practice liability insurance?
Want to see what it would cost for your firm?
Need guidance on how to go about structuring EPLI coverage? Give me a call or drop me an email, or click the link below – I’d love to hear from you.
Gordon B. Coyle, CPCU, ARM, AMIM, PWCA
The Coyle Group