Employment Practices Liability Insurance
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With the rapid rise of employment-related lawsuits, the demand for Employment Practices Liability Insurance (EPLI) has grown dramatically in recent years. It protects businesses from claims by workers who feel that their legal rights as employees were violated.
Almost all EPLI policies cover the three largest areas: discrimination, sexual harassment, and wrongful employment (both hiring and firing). Some policies also provide coverage for wrongful discipline; breach of contract (both expressed and implied); negligent supervision, evaluation, or promotion; emotional distress; invasion of privacy; drug testing; mental anguish; slander; libel; and mismanagement of employee benefit plans.
Most policies cover legal costs in addition to claim settlements (up to specified limits). Coverage typically applies even in the event of groundless or fraudulent claims.
EPLI isn’t usually part of more comprehensive Commercial General Liability policies. In fact, most General Liabilitypolicies specifically exclude employment-related claims. It also differs from Professional Liability policies in that EPLI protects against legal actions from employees, not clients.
Some Business Owners’ Policies and Directors’ & Officers’ Insurance policies (typically for smaller for-profit companies) may provide limited employment practices coverage, but the provisions tend not to cover as much as specific EPLI policies. Liabilities covered by Workers’ Compensation Insurance are usually excluded from EPLI policies.
Willful and intentional acts and criminal misconduct are usually excluded from EPLI policies, and most EPLI policies don’t cover punitive damages or civil punitive penalties.
Over half of all lawsuits filed in Federal court alleging civil violations are filed by employees against their employers. Such claims were much less common ten years ago. Some governmental legislative acts (like the Americans with Disabilities Act and the Family Medical Leave Act) have heightened awareness of wrongful employment practices and have contributed to the increasing number of claims.
Large firms may be most at risk, but no employer is immune from employee lawsuits. Small business owners may feel safe if they know and trust their employees, but need to be reminded that claims could be filed by former, current, or even prospective employees.
The cost of EPLI coverage is based on number of employees, location, type of business, industry, employment practices, past loss experience, and other operating characteristics. Companies can minimize their risk with consistent emphasis on fair and equitable hiring, discipline, review, and termination policies; careful screening of prospective employees; meticulous documentation of incidents; comprehensive employee training on these matters; and clear communication of corporate policies in employee handbooks, newsletters, bulletin board postings, websites, etc.
Compare policies to find the broadest coverage available for the price. Find out if the policy covers applicants, part-time and seasonal workers, leased workers, and independent contractors. How about board members? Volunteers? Are there exclusions for downsizing or other events which may lead to employee discontent?
Also find out if there are exclusions for certain Federal employment acts like the Fair Labor Standards Act and the Occupational Safety and Health Act.
Prompt reporting of all claims to your insurance company is absolutely critical. Failure to comply could seriously jeopardize your coverage.
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