Employment Practices Liability Insurance.  If you own a business, you have likely heard of this coverage, or maybe you know it as EPLI. But what is it and why does your business need it?

Over half of all Employment Practices Liability claims are filed against small businesses. EPLI provides them with protection against these claims brought by employees – claims that are typically excluded in most General Liability policies. Discrimination, wrongful termination and harassment are all examples.

So, do you need this coverage?  Well… maybe!  First, consider today’s evolving workplace has several challenges.  A diverse workforce can bring about issues regarding discrimination based on race or gender.  And most of us have felt the economic “squeeze.” Unemployment is high and those looking for jobs may feel that an employer’s hiring practices are discriminatory. Factor in that the U.S. has earned the dubious title of the most “litigious society,” and you can understand why business owners face a great deal of exposure to employment claims.

So the workplace is an environment ripe with potential lawsuits.  And just what could one of those do to your small business? While 75% of these lawsuits prove to be groundless, the business owner must still defend him or herself.  The average Equal Employment Opportunity Commission (EEOC) complaint takes over a year to resolve and a majority of these claims end up settling between $20,000-$40,000, causing major financial strain on a small business in both time and money. And while 75% of all EPL claims are groundless, legal fees can still be upwards of $25,000. In a nutshell, employee claims can severely damage a business’s reputation, and financial livelihood.

Let’s look at what an EPLI policy typically covers:

1. Wrongful dismissal, discharge, or termination.
2. Harassment, including sexual harassment.
3. Discrimination, including that based on age, race, color, national origin, religion, sexual orientation, pregnancy, or disability.
4. Retaliation (which could result from an employee filing a Workers’ Compensation claim or an employer making the employee’s job so uncomfortable that the  employee feels forced to quit).
5. Failure to employ or promote individuals, libel or slander (written or spoken untruths about individuals), humiliation, defamation, invasion of privacy, and false imprisonment.

Some policies also include Third Party coverage – coverage for a business owner’s customers, vendors, or clients.  So if your employee harasses a customer and the customer sues you, with an EPLI policy you would have some coverage to address the claim.

What’s not covered by an EPLI policy?

1. Criminal acts
2. Bodily injury and property damage
3. Workers’ Compensation, social security, unemployment, disability, or retirement benefits
4. Contractual liability – if a business owner fails to comply with a contracted agreement
5. Acts that the insured had prior knowledge of, prior notice of, or arising out of any prior litigation

By now, you may be asking, “Do I qualify for EPLI coverage?”  Each company is different, but in general, insurance companies want to know that:

• You’re in good financial standing.  This is relative, but most require the business to have been in continual operation, with no bankruptcy filings for at least three years.
• All job applicants are required to complete and sign an application for employment.
• You keep, utilize, and make known to its employees that there is an employment handbook, whether in a handbook or website.  The material in the handbook needs to properly advise employees of their rights to work free of harassment and discrimination in the workplace.
• There have not been, nor will there be in the future, any planned layoffs or reductions greater than a certain percentage of your  total employees.

Even in the best of circumstances, despite how moral and ethical you may be, the risks are still very real, no matter the size of the business. Not only does an EPLI policy provide financial protection for damages and defense costs, the claims services provided by an EPLI carrier are typically specialized and the representatives are skilled in handling the complex nature of employment related charges and allegations.

Talk to your insurance agent to see if EPLI is a good coverage choice for you.

The Employment Practices Liability Insurance coverages described here are in the most general terms, and are subject to the actual policy conditions and exclusions. For actual coverage wording, conditions, and exclusions, refer to the policy or contact your independent insurance agent.