Employment Practices Liability Insurance
An employee discrimination claim can happen to any business. Are you covered?
Over the past several decades employee discrimination claims have been a hot and growing issue for companies. Between 1991 when Employment Practices Liability (EPL) was first offered and 1994 employment discrimination filings grew over 2,000 percent. Yet, even in today's highly litigious world the majority of small to mid-size businesses don't carry EPL insurance that could protect them from employee discrimination claims. A few choose not to, but most, as some recent survey's have discovered, think there standard general liability, or BOP policy contains coverage protecting them from discrimination claims. This is an alarming finding, as it only takes one discrimination claim, whether founded or not, to financially devastate a company. And if you're one of the thousands of small businesses owners that has a personal financial stake in the company you could be risking more than most.
In summary, employment practices liability insurance provides protection for an employer against claims made by current, former and even potential employees. It covers employment discrimination (age, sex, race, disability, etc.), wrongful termination of employment, sexual harassment and other employment-related allegations. It covers the actions of your firm, including its Directors and Officers. Everyday a company somewhere is being sued by an employee because of discrimination and is even estimated that 1 in 5 businesses will have a discrimination claim against them at some time. That's a 20% chance.
... 81% of claims settled in arbitration or in administrative hearings cost employers $ 22,000 to $ 40,000 on average. Even if you're able to settle a claim quickly it has cost companies on average $ 7,500.
Any accusation by an employee can immediately start costing your business money in administrative costs. On average it takes between 6 and 12 months to settle a claim. Even the simplest claim will require administration costs to defend the company. In fact, it has been estimated that 81% of claims settled in arbitration or in administrative hearings cost employers $22,000 to $40,000 on average. Even if you're able to settle a claim quickly it has cost companies on average $7,500. For larger companies the cost of such claims out of pocket, though would hurt, most likely can be absorbed. However, for a small or even mid-size business it could really effect the bottom line. Exposing your business to the unforeseen and unpredictable risk of an employee filing any type discrimination complaint is an unnecessary risk for any business.
Common EPL Coverage
- sexual harassment
- directors & officers lawsuits
- wrongful termination
- Americans with Disabilities Act violations
- age & racial discrimination
- fiduciary lawsuits
What's It Cost and How Do I Make Sure I Get The Right Coverage
The cost of EPL coverage can be very reasonable and is seldom a roadblock for having it as part of a company's' risk management program. However, it's important to discuss the coverage options available, as Employment Practices Liability coverage can vary with each carrier. One suggestion is to buy at least the basic, more common coverage's and then adjust the policy accordingly. Most EPL policies cover wrongful employment practices such as harassment, discrimination, and wrongful termination of employment. It's a good start, but some companies may want to look further for additional coverage, such as protection against things like punitive damages.
Another important thing to keep in mind when buying EPL coverage is control over who has the ability to choose legal representation. Some EPL policies will give the insurance company the right to choose legal counsel. This could be an issue because often times the insurance company will seek counsel based on price before quality. Employee discrimination claims are very serious so having the option to choose your own legal representation will at least give you a better chance in obtaining quality representation. Whatsmore, some EPL policies will subject the business to a financial settlement if the insurance company finds it to be the best option to settle a discrimination claim. If you can't negotiate with the insurance company to change these two restrictions and put more control in your hands then you might find another company that will. If anything, bring up your concerns with your agent and have your agent look into your options.
Lastly, review what expenses are covered if you should lose a discrimination case. Most employment practices liability insurance policies provide coverage for legal fees and expenses, lost benefits and back pay. Other expenses, such as fines, penalties, punitive damages even cost of accommodations, travel and future pay aren't covered. With an endorsement you may be able to get some of these covered so it's worth checking into. In the end it's worth looking carefully at what your EPL policy covers. After all, no one wants to pay for insurance coverage that won't protect you when you really need it!