We finally made it to the fifth and final installment of my Employment Practices Liability Insurance Course. This will serve as a final wrap-up and will hopefully answer any questions you have. The following questions are those I’m most asked by clients.
What Is EPL?
EPL, or Employment Practices Liability Insurance, is a type of business insurance that protects the employer from employees’ claims. The coverage pays for liability damages and defense costs related to the policy’s covered claims, which could include discrimination (sex, race, age, or disability), wrongful termination, harassment, failure to promote, or other employment-related issues.
Does My Business Need EPL?
Yes, every business needs EPL. Whether you’ve gone without coverage for a day, a month, or a number of years, securing a policy as soon as possible is always in your best interest.
When I talk to business owners who don’t currently have an EPL policy, the reason typically revolves around the belief that because the business is reputable and well-run, they’re not in any danger of having to submit a claim.
But the truth is that if a lawsuit is brought against your business, the damages are almost instant. Brands, morale, and reputations can suffer, leading to slower sales and lower revenue. Even if you’re innocent, there’s still a cost in defending your innocence and making up for any public relations damage.
What Does EPL Cover?
EPL covers the previously mentioned potential claims, including discrimination and harassment. But one important factor to consider about EPL coverage is that it isn’t limited to employees.
Your policy will also cover claims made by interviewees, contract workers, vendors, customers, and clients. You’ll want to discuss your policy with your insurance broker to make sure all of these possible claim originators are covered or if you need to add on third-party employment practices liability coverage.
What Is an Ideal Policy Limit?
It’s impossible for me to give an ideal policy limit without knowing the details of your business. Always speak to your insurance broker to make sure your limit makes sense for your risk level.
Factors that will be taken into consideration include the number of employees you currently have, the type of business you’re in, and whether you’ve had litigation issues in the past. While a $100,000 limit may be more than enough for one business, other businesses should never consider a limit under $250,000.
What’s the Difference Between Claims-Made and Occurrence-Based Policies?
It’s important to know the difference between these two types of coverage. In a claims-made policy, you’re protected against claims made during the policy period or during an extended reported period, if extended coverage is purchased.
However, if a claim is not reported by the employer within the defined period of it being brought to their attention, either in the form of a lawsuit or documented complaint, the claim may bar coverage.
In occurrence-based policies, the insurer is required to pay for claims during the policy period, no matter when the claim is reported to the insured or insurer. These types of policies are less common. Discuss both options with your insurance broker to see which makes more sense for your individual risks.
How Much Does EPL Cost?
There is a large range in premiums with EPL. The final cost will depend on a number of factors, including the size of your business and employee turnover. I find that most businesses can secure EPL coverage for about $100 a month.
If you want to know the high and low estimates though, be prepared to hear a quote between $800 and $3,000, though these limits aren’t a guarantee. But when shopping for an EPL policy, don’t consider the premium alone. You’ll want to compare deductibles, especially if you’re a small business. These types of businesses can see high deductibles, sometimes as large as $50,000.
Is EPL Required by Law?
No, there are no federal or state laws that require EPL coverage. However, I’ve never come across an industry or business that wouldn’t benefit from an EPL policy. If your business involves clients, vendors, employees, or contract workers, you’re never safe from litigation issues.
There are laws you should be well informed of though. These laws are why you need EPL coverage in the first place and include:
- Title VII of the Civil Rights Act of 1964
- The Equal Pay Act of 1963
- The Civil Rights Act of 1966
- The American with Disabilities Act of 1990
- Equal Employment Opportunity Act of 1972
- The Age Discrimination in Employment Act
Take the time to understand employment law (there are more than those listed) so that you’re less likely to experience an EPL claim. Ignorance is never a defense.
How Can I Prevent Claims?
There is no single checklist for preventing EPL claims. Overall, doing so takes plenty of planning and a commitment to prevention policies put in place. It never hurts to hire an outside consultant to review your policies and make sure they’re written in a way that protects your business.
But in general, you’ll want to have written directions and specifications for handling interviews, protecting employee information, conducting training, tackling reviews, and rewarding promotions. You’ll also want to investigate and properly document every single claim of harassment brought to your attention in the workplace.
You should also require employees to sign two documents. The first is an “employment-at-will” policy while the second is a confirmation that the employee received, reviewed, and was asked if they had any questions regarding your employee handbook.
If I’m Sued, Can I Choose My Own Defense Team?
This is a question you’ll want to ask your insurance broker before agreeing on a policy. When setting up your policy, you should have been asked if you wanted a duty to defend or duty to pay.
In a duty to pay setup, the insurer is not required to directly defend claims possibly covered by the policy. Instead, they are only required to reimburse for covered losses and costs.
A duty to defend setup will require the insurer to defend claims and lawsuits, cover all legal fees and costs up to the policy limit, and pay for any covered liability. But in this setup, they will reserve the right to select counsel and accept settlements.
Under most policies, the insurer retains the right to choose from a group of vetted law firms specializing in employment law. This is usually in the best interest of the insured.
A lawsuit doesn’t’ have to signal the demise of your business. I’ve seen EPL policies save the futures of businesses, both small and large, innocent and guilty.
I hope my passion and knowledge of EPL policies has shown throughout this course and it has left you either confident in your decision to have EPL coverage or has empowered you to seek out quotes and secure a policy. Should you have any remaining questions, don’t hesitate to reach out to me.
Remember, a lawsuit could be days away from turning your business upside down and it only takes, on average, about $3.00 a day to prevent financial and reputational disaster. You can afford EPL. You can’t afford not to.