What Is EPLI, and Why Is It Important to Your Business?

Judge banging a gavel

What Is EPLI, and Why Is It Important to Your Business?

Work-related lawsuits are on the rise, and a single claim against your company could be financially devastating if you’re not adequately insured.

Employment lawsuits have jumped 400% in the past 20 years. In fact, companies with as few as 100 employees can expect to receive an employment practices claim once every three years. Defense costs can top out at $300,000 per case, and a resolution may take 18 to 24 months.

Legal fees are not the only cost to your company. You may have to cover the expenses of investigating an allegation — audits, data collection and record production — which can rack up big bills. If the complaint involves sexual harassment or discrimination, you will also need (or may wish to have) help paying for a media response and reputational damage control.

Employment practices liability insurance (EPLI) protects employers from the costs of allegations of wrongful acts arising from the employment process. These allegations can include discrimination, sexual harassment, and hiring or firing actions. It can be purchased as a stand-alone policy or as an endorsement to your business owners policy (BOP).

EPLI offers lawsuit protection

Acts typically covered by EPLI include:

  • Wrongful termination
  • Discrimination
  • Sexual harassment
  • Retaliation
  • Defamation or libel
  • Invasion of privacy
  • Misrepresentation
  • Failure to promote
  • Breach of employment contract
  • Negligent evaluation
  • Mismanagement of benefits
  • Violations of various leave laws

Despite EPLI coverage’s relatively low premium, many employers don’t buy it because they mistakenly believe other types of insurance cover such complaints. In fact, most employers with fewer than 50 employees pass up this important protection.

EPLI is generally a separate coverage from your BOP, but talk to your insurance professional about the possibility of adding it to your insurance program as an endorsement. Alternatively, you may prefer a stand-alone policy with higher financial protections than are offered when the coverage is combined in a BOP.

Keep in mind that EPLI policies have exclusions. Most do not cover: 

  • Bodily injury
  • Property damage
  • Contract disputes
  • Intentional acts
  • Unpaid wages
  • Rest and meal times
  • Unemployment benefits
  • Consolidated Omnibus Budget Reconciliation Act or Employee Retirement Income Security Act violations
  • Wage and hour violations
  • Punitive damages

Also, EPLI is a claims-made coverage, meaning claims are covered only when both the incident in question and the claims related to it occur while the policy is in force. If you’re sued after the policy has lapsed, you won’t be covered.

Choose the right coverage

It’s best to work with an insurance professional who has experience in the employment practices area and who can design a policy tailored to your needs. Your coverage and premiums will be determined by the type of business you are in, the number of employees you have, your human resources (HR) practices and claims experience, and the limits and deductibles you choose.

Most EPLI policies provide defense coverage, but you may be required to use an insurer-approved attorney. So inquire about carriers’ litigation records when deciding which one to place your business with. Also ask if your coverage applies beginning with the first dollar you have to spend on legal response and if costs associated with regulatory inquiries about an employment practices complaint are included.

Your EPLI coverage should be coordinated with other types of coverage you may have. These include directors and officers liability, cyber liability, crime and fidelity, and fiduciary insurance.

Follow HR best practices

During the underwriting process, the insurer will review your employment policies and procedures. Most insurance companies will work with policyholders to help them manage risks and improve their HR practices. Many provide additional client services designed to prevent claims. These include help lines, sexual harassment and ethics training classes, legal services, and employee handbook assistance.

Among the employment safeguards you should have in place are:

  • Written hiring procedures that meet federal and state requirements
  • An employee handbook
  • Orientation for new employees, including anti-discrimination and anti-harassment policies
  • Regular, consistent and fair performance reviews, with policies for addressing and documenting unacceptable performance
  • Safe, confidential reporting procedures for employee feedback
  • Specific guidelines for terminating employees, with consideration given to whether they are a member of a protected class or under contract

Protect yourself by being proactive in your employment practices. Hire a good HR administrator and consider retaining outside counsel familiar with labor law to keep your company in compliance.

For example, does your employee handbook clearly explain the types of employee conduct that are prohibited? Do you have procedures in place to investigate and promptly act on complaints? Do you have policies for email, social media, privacy and sexual orientation?

Top trends in employment-related claims

Employers face many risks in the workplace today. Staying on top of EPLI claims trends can help reduce your exposure to wrongful acts. Here are seven trends you should take into account when designing your insurance coverage:

  1. Sexual harassment — The #MeToo movement has spurred an increase in harassment claims, including LGBTQ-based sexual harassment charges.
  2. Retaliation — More than half of all Equal Employment Opportunity Commission claims filed in 2019 involved claims of retaliation. And employers can be on the hook for retaliation even if it turns out there was no underlying harassment or discrimination. 
  3. Pay equity — The Bureau of Labor Statistics reports that women continue to trail men in earnings, making about 81% of what men are paid. In the past few years, a number of states have enacted pay equity laws that impose stricter standards on employers and lessen the legal burden for employees alleging wage discrimination.
  4. Marijuana legalization — At least 11 states now allow recreational marijuana use, and even more allow medical marijuana use, creating legal complications for employers who test for drugs (especially those with zero tolerance policies).
  5. Worker classification — The gig economy has made it imperative to properly classify employees. If an independent contractor or unpaid intern is performing the duties of a regular employee, you may be in violation of the Fair Labor Standards Act and corresponding state law. You could also be in violation if you’ve denied overtime to employees by misclassifying them as exempt.
  6. Website accessibility — Plaintiffs’ attorneys continue to sue businesses with public-facing websites. These suits allege that a company’s website is a “public accommodation” under Title III of the Americans with Disabilities Act (ADA). If you conduct commerce online, make sure your site is compliant with the ADA.
  7. Pregnancy and lactation accommodation — Nearly half the states have passed laws that protect pregnant workers by requiring employers to provide reasonable accommodations. Some of these laws also require employers to accommodate lactation for a certain period of time after an employee gives birth.

Following HR best practices and having the right insurance coverage are the best ways to defend against employment claims. Talk to your insurance professional about the risk management and crisis response services available under some EPLI policies. You’ll have the peace of mind that comes with knowing you’re protected against the high costs of an employment practices complaint.

This content is for informational purposes only, should not be considered professional, financial, medical or legal advice, and no representations or warranties are made regarding its accuracy, timeliness or currency. With all information, consult with appropriate licensed professionals to determine if implementing any recommendations would be in accordance with applicable laws and regulations or to obtain advice with respect to any particular issue or problem.

Coast General Insurance Brokers