Sales projections, project deadlines and prospecting for customers are always on the minds of small business owners. Unfortunately, something that rarely crosses a small business owner’s mind is the possibility of an employee lawsuit.
The reality is that businesses, large and small, are more likely to encounter an employment-related claim than a property or general liability claim.
Companies with as few as 100 employees can expect to receive an employment practices claim once every few years, according to Westlaw’s 2016 Employment Practices Liability: Jury Award Trends and Statistics.
In this article, we’ll explore why the need for Employment Practices Liability Insurance (EPLI) is greater than ever. Here are the four topics we’ll cover:
- What EPLI is and why you need it
- Why General Liability Insurance (GLI) isn’t enough
The ABCs of EPLI
If you’re wondering whether EPLI is worth a closer look, ask yourself this question: “Do I work with people?” If you answered yes, your business is a candidate for coverage. Regardless of the size of your business, past, present, and prospective employees can call you out.
Offered on a stand-alone basis or combined with an existing policy, EPLI helps safeguard businesses against employee lawsuits alleging inappropriate or unfair acts. Even when done unknowingly, violating an employee’s (or contractor’s) rights can have devastating consequences.
Common employer missteps include:
- Wrongful discipline, demotion, or termination
- Failure to hire or promote
- Sexual harassment
- Discrimination, from age to sexual orientation
- Libel, slander, defamation of character, or Invasion of privacy
- Wrongful infliction of emotional distress
These indiscretions led to the creation of landmark legislation including:
- The Equal Pay Act of 1963
- Title VII of the Civil Rights Act of 1964
- The Equal Employment Opportunity Act
- The Americans with Disabilities Act of 1990
- Age Discrimination in Employment Act
- Family and Medical Leave Act
EPLI can be either claims-made or occurrence-based coverage. Most EPLI policies are written on a claims-made basis, meaning coverage is triggered when a claim is first made against an insured during the term of the policy.
EPLI typically covers the legal defense fees and settlement costs or damages – up to the policy’s coverage limit – whether the employer settles, wins, or loses the case, but coverage options and costs of EPLI policies vary greatly.
Not getting by with GLI
While many small business owners believe General Liability Insurance (GLI) would safeguard them against a potential lawsuit, the reality is GLI doesn’t usually cover any employment practices claims. This misconception can have costly consequences.
According to the Conflict Solution Center, a California-based nonprofit specializing in workplace mediation services, the average cost to litigate an employment practices claim is $160,000.
Although a valuable form of protection, EPLI doesn’t cover everything. Below are several incidents that fall outside the scope of EPLI coverage:
- Civil and criminal fines
- Unpaid wages
- Property damage
- Claims of bodily injury
- Bullying
- Claims related to the use of social media
- Unemployment benefits claims
- Punitive damages, if uninsurable under state law
- Workers’ compensation claims
- Actions that occurred outside the United States
What You Need to Know About EPLI
If you have employees, vendors or customers, you need Employment Practices Liability Insurance (EPLI). General Liability Insurance, unlike EPLI, will not protect your business from employment-related claims filed by your employees or vendors.
Both big and small businesses are at risk. Every employer, large or small, can be the target of legal action from past, present and prospective employees.
Learn More
Running a small business is a tough job. AmTrust works to make it a little easier by providing online resources to help you avoid any employment-related transgressions. Subscribe to our blog today to get weekly updates on the commercial insurance industry and recent trends.
This material is for informational purposes only, summarizes coverages and services that may be available in a policy, and is not legal or business advice. Neither AmTrust Financial Services, Inc. nor any of its subsidiaries or affiliates represents or warrants that the information contained herein is appropriate or suitable for any specific business or legal purpose. Readers seeking resolution of specific questions should consult their business and/or legal advisors. Individual coverage may vary and may not be available in all states. In the event of a conflict with the material herein, the terms and conditions of any issued policy will control.
Resources
Equal Employment Opportunity Commission
Complete the picture: A spotlight on the United States Employment Practices Liability Insurance market, a study conducted by Advisen, September 2014
Law 360, a LexisNexis Company