Do I Need Employment Practices Liability Insurance (EPLI)?

Hiring people is risky business and, like it or not, we live in an increasingly litigious society. That’s why, if you have employees, you should probably have Employment Practices Liability Insurance (EPLI). 

EPLI can help make a stressful situation a lot less stressful.  

Say you’ve decided to part ways with an employee who just wasn’t a great fit. But a month later, out of the blue, you get a letter demanding a year’s worth of severance pay because, well, the ex-employee feels she deserves it. If you have an EPLI policy, you can essentially turn this situation over to the insurance company (and their lawyers) to deal with. Your only involvement may be to provide some documentation and pay the deductible. Without it, you’re on your own to navigate how your former employee’s demand should be handled – whether that be in or out of the courtroom. Either way, it will require time and money – two things you likely don’t have in abundance. 

While you may be confident that you don’t mistreat employees, people can misinterpret a situation or even make a false accusation. 

What is EPLI?  

EPLI protects businesses when a worker claims that their legal rights have been violated. It will reimburse a company against the costs of defending a lawsuit in court and for judgments and settlements. This type of insurance covers legal costs and attorney’s fees, whether a company wins or loses the lawsuit. However, most policies do not pay for punitive damages or civil or criminal fines. Liabilities covered by other insurance policies, such as workers compensation, are excluded from EPLI policies. 

There are two types of EPLI: first party and third party. First party covers a business if an employee claims their rights were violated. Third party covers claims by a third party (a customer, vendor or partner). 

What does it cover? 

EPLI is applicable in a number of scenarios. Here’s a partial list from the Insurance Information Institute: 

• Sexual harassment
• Discrimination
• Wrongful discipline or wrongful termination
• Ageism
• Retaliation
• Breach of employment contract
• Negligent evaluation
• Failure to employ or promote
• Deprivation of a career opportunity
• Mismanagement of employee benefit plans

What does it cost? 

Like with any insurance policy, the answer is, it depends. Factors include the type of business, the number of employees, revenue, and various risk factors such as whether a company has been sued over employment practices in the past. Premiums can range from less than $1,000 annually for a smaller company (fewer than 10 employees) to tens of thousands for larger firms.  

Do I need it? 

It’s not a legal requirement to have EPLI, but the expense of defending employment claims can be very costly. Something to consider: Data from the Equal Employment Opportunity Commission shows that there were 67,448 charges of discrimination filed in 2020 with awards totaling hundreds of millions of dollars. But even if the case is dismissed, it can cost a pretty penny, depending, of course, on the nature and complexity of the case. Defending a case through discovery and a ruling on a motion for summary judgment can cost an employer up to $125,000. Lose a summary judgment, and you can expect to spend $175,000 to $250,000 to take a case to a jury trial.

However, there are steps a business can take to minimize the risk of employee lawsuits by educating managers and employees, according to the Insurance Information Institute: 

• Create effective hiring and screening programs to avoid discrimination in hiring.
• Post corporate policies throughout the workplace and place them in employee handbooks so policies are clear to everyone.
• Show employees what steps to take if they are the object of sexual harassment or discrimination by a supervisor. Make sure supervisors know where the company stands on what behaviors are not permissible.
• Document everything that occurs and the steps your company is taking to prevent and solve employee disputes.

Things to consider 

Janice Fritz, Human Resources Consultant at KIG, recommends that, when you’re choosing a policy, that you understand who controls the claims-handling process — the insured or the insurer. Some EPLI policies, she says, stipulate that the insurance company will choose your attorney if a claim is filed. 

“In my experience, I’ve seen some businesses disappointed in the fact that they lost the ability to control the outcome of a claim, or to choose a lawyer or law firm that they normally work with and had a comfort level with,” Janice says. 

If you’re not sure if EPLI is right for your company, let’s discuss it. Call us at (724) 349-1919. 

To learn more:

What Is D&O Insurance And Do I Need It? 

What is Ageism?