EPLI Insurance

Why EPLI Insurance Matters

Over the past two decades, employee lawsuits have surged by nearly 400%, with wrongful termination suits alone seeing an increase of over 260%. Interestingly, you’re more likely to face a lawsuit from an employee today than experience a fire at your business premises.

Surprisingly, it’s not just large-scale corporations that are being targeted. Approximately 41.5% of employee lawsuits are lodged against private companies with less than 100 employees. The cost of settling such lawsuits out of court can average $75,000, and if you lose the case in court, the average settlement fee can escalate to $217,000.

Despite the rising trend of these lawsuits, a staggering 70% of businesses do not carry EPLI insurance, potentially making them vulnerable to costly legal proceedings.

Understanding EPLI Insurance

At its core, EPLI insurance is designed to protect employers from lawsuits initiated by employees. It provides coverage for a multitude of scenarios that general liability insurance does not cover. Legal defense can be costly, even in cases where your company is victorious. Therefore, EPLI coverage provides crucial financial protection for your business.

The coverage can protect your business against a variety of lawsuits, including those related to discrimination and harassment. These types of claims have become more frequent over time. Therefore, acquiring EPLI coverage tailored to your business’s unique needs is essential.

What EPLI Insurance Covers

Without the right coverage, your business may not be able to withstand a lengthy legal battle. EPLI helps in covering court, settlement, and defense costs.

EPLI coverage can be purchased as a standalone policy or found inside a management liability insurance package. These packages combine EPLI coverage with directors and officers liability and fiduciary liability insurance.

Typically, EPLI provides coverage for legal expenses arising from the following claims:

• Sexual Harassment
• Wrongful Termination
• Breach of Employment Contract
• Discrimination
• Negligent HR Decisions
• Inaccurate Employee Evaluations
• Violation of Local and Federal Employment Laws
• Infliction of Emotional Distress or Mental Anguish
• Failure to Employ or Promote
• Wrongful Discipline or Demotion
• Mismanagement of Employee Benefits
• Defamation of Character
• Privacy Violations

An EPLI policy covers actions committed by anyone within the organization, whether someone in top management or an entry-level employee. Most policies also cover the cost to settle a case out of court and defense costs if an employee lawsuit goes to court.

However, it’s worth noting that every EPLI policy is different, so it’s wise to read the fine print carefully.

What EPLI Insurance Does Not Cover

While EPLI insurance provides a broad range of coverage, it doesn’t cover every type of employment-related claim. The following types of claims usually aren’t covered by EPLI:

• Employee Illnesses and Injuries: To cover employee injuries and illnesses that occur on the job, you’ll need to purchase workers’ compensation insurance.
• Employee Theft: To cover acts of employee dishonesty, you’ll need to buy a fidelity bond or a larger commercial crime insurance policy.
• Professional Errors: If someone in your company makes a professional error that triggers an employee lawsuit, this isn’t covered by EPLI. You’ll need separate malpractice or professional liability insurance.
• Management Decisions: EPLI doesn’t cover certain types of management decisions or board of director decisions, such as improper use of company funds or failure to follow company bylaws. In those cases, directors and office insurance can provide coverage.
• Union Disputes: Claims arising from labor relations disputes or collective bargaining agreements aren’t covered by EPLI.
• Unemployment Insurance Claims: Most states have agencies devoted to handling unemployment benefit claims, and they don’t fall under the scope of EPLI.

Who Needs EPLI Insurance?

Any small-business owner with employees should consider buying EPLI insurance. It’s especially important in industries that have high rates of employee turnover. Employees in such industries are more likely to allege discrimination, sexual harassment, or wrongful termination, which are the main types of legal claims that EPLI covers.

For instance, restaurants, construction and manufacturing companies, and retailers should purchase EPLI. Moreover, even outside these industries, buying basic EPLI coverage is wise if your business can afford it.

The Cost of EPLI Insurance

The cost of EPLI insurance can start as low as $500 per year for $1 million in coverage for a company with fewer than five employees. However, the actual cost will depend on various factors such as:

• Number of Employees
• Type of Employees (full-time, part-time, or seasonal)
• Industry
• Location
• Historic Employee Turnover Rates at the Company
• The Company’s Claims History
• Hiring/Firing Procedures
• Documentation of Employee Training and Conduct
• Amount of Coverage and Size of Deductible

We’ll provide you an exact price estimate by collecting detailed information about your business and employees.

Ways to Lower the Cost of EPLI Insurance

The best way to lower the cost of EPLI coverage is to have safeguards in place that minimize the risk of employee lawsuits. Here are some steps you can take to reduce the risk of employee claims:

1. Assess your business’s discrimination and harassment risks
2. Ensure your employees understand their legal responsibilities
3. Demonstrate your business’s commitment to preventing discrimination and harassment
4. Share information about discrimination and harassment prevention early and often
5. Hold all employees accountable for complying with policies
6. Ensure that employees aren’t retaliated against for reporting employment discrimination
7. Seek assistance as appropriate

Today, EPLI insurance is no longer a luxury but a necessity for businesses of all sizes. It provides much-needed protection against a wide array of employee claims, ensuring you can continue to operate even in the face of potential legal challenges. Remember, it’s always better to be safe than sorry.