What is Employment Practices Liability Insurance?

What is Employment Practices Liability Insurance, H & K Insurance Agency, Inc., Watertown, MAHiring your first employee is a cause for celebration. You’ve gone from self-employed to self-made. But once another person enters the picture–another person who you will pay in exchange for services–there are certain legal ramifications to that agreement. From the moment you start looking for that hire, to months or even years after you fire them, you are held liable for them as your employees. If the employee or ex-employee makes claims that you violated their legal rights as employees, it can tie you up in year-spanning legal battles that poor documentation and HR can turn into a losing fight, even if you did nothing wrong.

EPLI Definition and Coverage

Employment practices liability insurance (EPLI) is a specialized liability insurance that protects employers against claims made by potential, current, and ex-employees alleging one or more of the following (note this list is not exhaustive and certain EPLI polices may have exclusions):

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

Not All Policies are Equal

Policies are either an endorsement to a Business Owners Policy (BOP) that changes the terms and conditions of the policy, or is a stand-alone policy. When looking at policies, check to see that the policy does the following:

Does not include an Intentional Acts Exclusion: discrimination, harassment, and wrongful termination are considered intentional. Claims made under any of these acts would not be covered by the policy.

Provides Prior Acts Coverage: EPL claims usually build from a history of alleged harassment, discrimination, or other grievances, and are therefore—by their nature—supported by prior acts.

Does not include an Unmodified Bodily Injury Exclusion: emotional distress, humiliation, and mental injury/anguish all fall under this category, and are often attached to any EPL suit.

Does not include a Claims-made and Reported clause: while almost universally EPLI policies are claims-made—the policy triggers when an EPL claim is made—the “and Reported” clause adds a window of time when the claim must be reported to the insurer.

Also check to see how the policies handles wage/hour claims. If your company is ever subjected to labor agreements or labor organization efforts, understanding your policy will be key in how you might address these situations.

All major companies have EPLI policies, but for many small business owners the need for an EPLI policy only becomes clear after their first EPL claim, after which they have lost money either due to court expenses, losing the claim, or settlements. Small business owners are usually the most at risk, with poor employee screening procedures, a lack of proper human resources management such as documentation and regular evaluation, and a casual relationship between owners and employers. If you’re planning to get a BOP, or already have one but not EPL insurance, please contact H & K Insurance today. We’ll talk about if EPLI is right for you, and if you should get it as an endorsement or a stand-alone policy.