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Disgruntled Staff and Employment Practices Liability Insurance

December 20, 2017

Business is going great! You're enjoying success and conquering challenges that arise. But have you planned for overcoming a lawsuit filed against your company by a former employee claiming wrongful termination or sexual harassment?

Your business will be swept up in a whirlwind of legal fees and settlement costs over a period of several months, taking valuable time and resources away from your daily operations.

How would your business be able to survive losing thousands, possibly hundreds of thousands of dollars in such an event?

What you will learn:

Employment Practices Liability Insurance.

Otherwise known as EPL insurance, employment practices liability insurance covers employers and managers against allegations of discrimination, sexual harassment, wrongful termination and other employment related issues.

Who Needs It?

If you own a business, you need EPL coverage. Most large companies will already have this coverage in place, leaving them prepared to deal with any employment related lawsuits.

However, small or new businesses are most vulnerable to employment practices claims. The reason being is they usually lack a written handbook with policies and procedures or a legal team to provide that information.

Why Do You Need It?

According to Berkshire Hathaway, these are the 5 most pressing reasons companies need EPLI protection:

1. Over 40% of EPL claims are against companies with under 100 employees.
 Three out of five employers are sued by former employees each year.

The financial ramifications of not having EPLI can be crippling, especially for small firms because they do not have the operating budgets to handle the defense costs, let alone settlements or judgments, of uninsured claims

 The average compensation to plaintiffs is $325,000
EPL covers actual and alleged acts of discrimination, harassment, retaliation, wrongful termination and other similar acts. 

The risk of an employment practice liability claim begins the moment you interview a prospect and ends upon their termination. It’s important to ensure you are properly covered every step of the way.

Obtaining EPLI Coverage.

Employment claims often come months or years after the alleged incident. This could leave your company vulnerable if coverage is not properly in place. The first step is to get in contact with your insurance adviser and find a solution best for your business.

EPL coverage is usually written on a claims-made basis, meaning the incident in question had to occur during the coverage period. Because there are often long periods of time between incidents and claims, you’ll want to ensure tail coverage is purchased or that your insurance is not dropped. This will help you avoid disaster in the end.

How Much Does EPLI Coverage Cost?

The cost for insuring your business will depend on:

  • The number of employees you have
  • The average turnover rate of staff
  • If you have established policies and procedures in place
  • If you have had prior suits filed against your company

EPL coverage can either be a stand alone policy or an endorsement to a Business Owner’s policy (BOP) or General Liability (GL) policy. Keep in mind, if you add EPL coverage as an endorsement on another policy, there may be insufficient limits and narrow coverage.

Prevent EPLI Claims From Even Happening.

  • Review potential exposures with your insurance adviser and obtain the adequate amount of coverage.
  • Develop an employee handbook that details your company’s policies and procedures, such as attendance, disciplinary action, and where to direct concerns.
  • Have job descriptions prepared for each position to clearly define expectations of the role.
  • Hold reviews periodically to evaluate performance and notate results in the employee’s file.
  • Make sure your employment application includes both an “equal employment opportunity” statement and an “at-will” employment clause.
  • Put a “Zero Tolerance” policy into effect for discrimination, substance abuse, and harassment. If the event a problem arises, an “open door” policy will help employees report issues without fear of retribution.
  • Put a record keeping system in place and use it to document issues as they arise and how the company resolved them.

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