Legacy Digest

What is Employment Practices Liability Insurance (EPLI) And Why Do You Need It?

When it comes to business insurance policies, there are so many different terms and types of coverage that trying to understand all of them can be overwhelming. Here at Legacy Partners, our goal is to help businessowners understand their insurance so they know what risks they face and how insurance can help protect against those risks. One crucial coverage that many businesses overlook is Employment Practices Liability Insurance (EPLI). Here’s a detailed look at this type of insurance coverage and why it’s so important for businesses of all shapes and sizes to have it.

Understanding EPLI Coverage

What is EPLI Coverage?

As a businessowner, one of the most challenging aspects of the job can be dealing with employees. Whether it’s finding the right person for the job or dealing with issues you’re having with your current employees, you can quickly find yourself spending way more of your time than you want to dealing with staffing issues because ultimately your business thrives or dies based on what your employees are doing.

Even as you deal with employees on a regular basis, you may not realize all the risks that your business faces in these types of regular interactions.

EPLI provides coverage for businesses against claims by its employees that their legal rights as employees (or even prospective employees) of the company have been violated. For example, EPLI coverage is typically designed to help cover the expenses associated with claims based on:

• Sexual harassment
• Discrimination
• Wrongful termination
• Breach of employment contract
• Negligent evaluation
• Failure to employ or promote
• Wrongful discipline
• Deprivation of career opportunity
• Wrongful infliction of emotional distress
• Mismanagement of employee benefit plans

These types of claims can be very costly to defend, and there’s no doubt that these claims are on the rise.

How Is This Different From General Liability?

Our team here at Legacy Partners’ often hears from businessowners that think that once they have a general liability policy in place, they don’t need other types of liability insurance like EPLI. There’s no question that a good general liability policy is important for all businesses.

General liability is designed to provide protection against certain types of claims, like a customer who slips and falls in your parking lot, or an accident caused by a product you manufacture. However, these policies do not cover every type of claim that can be brought against you.

Indeed, every general liability policy you could buy contains some number of standard coverage exclusions in the policy language. One of the standard exclusions on a general liability policy is for exactly these types of EPLI claims. So if you don’t go out and purchase EPLI coverage separately, these types of claims are typically NOT covered, and you could be left to handle the costs on your own.

What About Claims By Third Parties Against Your Employees?

While EPLI coverage is traditionally thought of in the first-party context where claims are brought against the business by employees, there is also some exposure for your business to claims of discrimination and harassment brought by third parties against your employees. These types of third party claims can be brought by:

• Customers
• Vendors
• Independent Contractors
• Other Business Invitees

The good news is that as a part of your EPLI coverage, you can endorse the policy to also provide third-party coverage that will also provide protection against these types of claims as well.

Why Does Your Business Need EPLI Coverage?

If You Have Employees Or You Engage With Customers, You Have A Potential Exposure

Businesses of all shapes and sizes should strongly consider adding EPLI coverage because of the fact that it is routinely excluded from your general liability coverages, and every business has an exposure. If you have employees, you risk them suing you for harassment or discrimination.

Even if you are the only employee of your company, you face a risk that a customer or other third party will claim harassment or discrimination. In order to close the loophole created by the exclusion to your general liability policy, every business should carry some coverage for EPLI.

The Exposure Could Bankrupt Your Company

In recent years, we have experienced huge increases in the volume and severity of these types of claims against business of all sizes.

Some recent industry estimates help show just how big of a problem these claims can cause for businesses:

• Even if the claim is completely baseless – totally made up – it can cost a business around $50,000 in legal costs just to get the claim dismissed.
• The average cost of a settlement for an EPLI claim is $75,000 – and that doesn’t include any legal fees you may also have to pay to your own attorneys.
• If you take a claim to trial, you could expect to end up paying $570,000, on average:
  • $250,000: The average jury trial award for EPLI claims.
  • $120,000: The average cost of your own legal fees.
  • $200,000: The average cost of the claimant’s legal fees, which you may also be responsible for paying if you lose the case.

Remember, these are just average dollar amounts and your own exposures could wind up being even higher than this – especially if there are multiple claimants involved.

On top of all of that, if you are found to have intentionally discriminated against an employee or job applicant, compensatory and punitive damages may also be awarded in some proceedings, which can range from $50,000 to $300,000 depending on the size of your business.

Conclusion

EPLI coverage is an important addition to every business insurance policy. It provides essential financial protection and peace of mind in scenarios where you might otherwise be left vulnerable. Every business owner should have some amount of coverage because the costs of not having it can bankrupt your business.

For personalized advice and comprehensive coverage options, contact Legacy Partners Insurance. As an independent agency serving all Michiganders, our licensed professionals are ready to assist you with all your insurance needs. Call us today to ensure your business is properly protected.