Employee Practices Liability Insurance – Are You Covered?

Last month I reviewed some of the trends that are emerging for employers at it relates to employment related lawsuits. Employment Practices Liability Insurance, or EPLI, is the particular insurance coverage that is designed to protect organizations from employment-related lawsuits. 

Employee lawsuits are a risk for every company – even great companies. As regulations and social norms continue to evolve, these types of lawsuits have become increasingly more frequent. The wide array of possible employee claims grows by the day including, but not limited to, all kinds of discrimination, wrongful termination, workplace and/or sexual harassment, breach of contract, and medical marijuana usage.

While a number of these claims are covered by EPLI, there are specific scenarios that are excluded. Claims that an employer violated the Fair Labor Standards  Act (e.g., failure to pay overtime, misclassification as an independent contractor) or claims under ERISA, COBRA, or the National Labor Relations Act are typically not covered by EPLI policies, although it may be possible to purchase limited coverage for defense costs.

These types of suits and the magnitude of time, effort, and money it takes to resolve them are significant to both employers and employees alike. It is easy to perceive some of the smaller cases as merely an inconvenience, but more often than not they are expensive, distracting to management teams, and a surefire way of eroding employee morale.

Despite these risks, roughly 7 out of 10 businesses do not have an EPLI policy.

Business owners should consistently take the time to review their policies as well as the trends and changes in their own marketplace. As a business thrives and seeks to expand its employee base, the potential exposure also continues to grow. Once a business hires an employee, they are legally obligated to provide them with a certain treatment. EPLI protects a business and its managers, employees, officers and directors when prospective, current or former employees accuse them of falling short.

EPLI, alongside other policies like Errors & Omissions, Directors & Officers, and Commercial General Liability, is an investment that can easily pay  for itself in the event of a single claim. Premiums will vary depending on a number of factors, including number of employees, amount of coverage purchased, whether the company has antidiscrimination and anti-harassment human resource policies policy in place, and if the company has had any EEOC complaints or lawsuits filed against it in the past.

DETAILS PERTAINING TO COUNSEL – CLAIMS THAT MAY BE FILED

Policies generally impose on the insurer either a “duty to defend” or a “duty to reimburse.”

DUTY TO DEFEND requires the insurer to defend the claim or lawsuit, cover legal fees and costs, and pay for liability (all up to the policy limits). Insurers with a duty to defend retain high levels of control over the defense of claims, the selection of counsel, and litigation and settlement strategies.

DUTY TO REIMBURSE requires the insurer to reimburse covered costs and losses and is typically not required to defend matters reasonably related to the underlying claim. However, the company itself retains higher levels of control in selecting counsel and executing its defense strategies.

MUTUAL SELECTION OF COUNSEL can be helpful in ensuring that the company has a hand in choosing who represents their interests during any litigation, versus depending on an unknown lawyer selected by the insurance company. Business owners may want to consider negotiating this Endorsement to the policy for greater flexibility when it comes to selecting their own counsel.

Ensuring proper coverage is in place should be a top priority. As your workforce becomes more diverse, be sure to consult with your advisors frequently to review and update your policies, discuss potential claims scenarios, and build out proper training for employees at all levels as an additional safeguard.