What Does EPLI Cover - ALLCHOICE Insurance - North Carolina

What Does Employment Practices Liability Insurance (EPLI) Cover?

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Return To: Employment Practices Liability Insurance (EPLI) – The Ultimate Guide

EPLI is a form of insurance to protect businesses against employee-related lawsuits.

Most of the litigation that companies face are disputes, and the number of lawsuits against employers is increasing.

An EPLI Policy helps mitigate potential losses caused by litigation.

Why Do Businesses Need EPLI?

Around 65% of all employers who’ve fired an employee later face a lawsuit. For the cases that do make it to court, the legal fees and damages can cost an average of $400,000.

Big corporations are often the target of these disputes, though any business can have vulnerabilities. The costs can reach exorbitant amounts as seen in these cases:

  • In 1995, Publix Super Markets paid $81.5 million total, with $63.5 million going to around 150,000 women. The lawsuit claimed that the company was relegating women to the worst conditions and jobs. They were also preventing promotion opportunities.
  • In 2000, Coca-Cola paid $192.5 million after a group of African-American employees filed a lawsuit. The lawsuit included allegations of discrimination in promotion, pay, and evaluations. The case caused a massive change in the company’s infrastructure.
  • In 2013, Henry’s Turkey Service paid $240 million to 32 workers. A lawsuit filed discovered that the employer physically abused their disabled workers who were only paid $2 a day to butcher turkeys. The workers also lived in a building deemed as a fire hazard.

Employment Practices Liability Insurance Coverage

The EPLI provides coverage against many types of lawsuits. It helps pay for legal fees and damages, depending on the policy, for many employment related claims.

The cost of maintaining an EPLI also depends on coverage and the risk involved. Companies that experienced lawsuits in the past will likely pay higher due to the risk involved. Other factors that insurance companies consider include:

  • Company size (number of employees)
  • Established rules and practices
  • Employee turnover rate

There are some exceptions to the coverage. The EPLI does not cover criminal fines and punitive damages. They also don’t cover liabilities under policies such as workers’ compensation. Here are the cases that EPLI covers:

  • Sexual harassment
  • Wrongful termination
  • Discrimination
  • Deprivation of career opportunity
  • Employee benefit mismanagement
  • Invasion of privacy
  • Defamation

EPLI policies have a limit of around $1 million to $25 million in coverage. Some policies have limitations, depending on the issue at hand.

For example, some companies don’t cover immigration cases or mergers. Small Businesses should carefully examine and choose a policy that best fits a worst-case scenario.

What EPLI Doesn’t Coverage

Aside from penalties or punitive damages, EPLI policies also don’t cover several cases. These include:

  • Property damage
  • Actions outside the country
  • Claims for bodily injury (bullying, lack of rest and mealtimes, etc.)
  • Retirement (ERISA)

Preventing Employment Practices Lawsuits

There are practices to help reduce and prevent any lawsuits leading to potential damages. Educating your employees and managers is key to retaining a good environment. Here are some aspects of the company that you may need to fix.

Hiring Process

Many lawsuits come from new hires of a company. Once you hire a person, you could be liable for any issues that may occur shortly after accepting.

For example, a new hire may prove to be negligent of their duties, leading to early termination. This former employee can then come back to file a lawsuit citing wrongful termination. Here are some ways you can prevent this mess:

  • Have an employee handbook that details policies and procedures. These should include any actions during complaints and other issues.
  • Have statements declaring the business as an equal employment opportunity company.
    • Having employee at-will statements in the handbook is also essential.
  • Clearly define the expectations and requirements of each position.
  • Conduct periodic performance reviews and keep documentation.
  • Make screening and hiring stricter to remove unsuitable candidates.
  • Conduct thorough background checks.
  • Have a zero-tolerance policy against harassment, discrimination, and abuse.

Understand and Implement Employment Laws

Various laws are in place to protect employees and potential hires. Knowing these laws and having people versed in these laws ensures your company follows them. The important ones to note are:

  • The Age Discrimination in Employment Act
  • Equal Employment Opportunity Act of 1972
  • Immigration Reform and Control Act of 1986
  • Civil Rights Act of 1966
  • Equal Pay Act of 1963
  • Americans with Disabilities Act of 1990
  • Title VII of the Civil Rights Act of 1964

Have a Paper Trail and Complete Documentation

Apart from your policies, you should document steps you are taking to ensure that the company resolves employee issues. Documentation is vital if you need to show proof when a lawsuit does occur. It can also act as evidence to dispute wrongful claims when problems do arise.

Educate and Create Transparency

While you may be doing your best to prevent any disputes from arising, your managers may not reflect the same values. Let them know that actions of discrimination are not acceptable in the workplace.

Be transparent and let employees know that you are approachable. They must have confidence when unacceptable behavior arises within the company.

Do Not Forget the Claims Period

EPLI coverage has a claims-made basis. The reason many employers fail to take advantage of the policy is due to missing the coverage period. Your policy will dictate the timeframe in which you need to make the claims. Many companies have failed due to claiming months or years after the incident.

Others fail to get their claims because the insurance period ended for a time before the incident. For others, it is because they didn’t get tail coverage. Tail coverage allows the insurance to extend beyond the policy period.

How Much Does EPLI Cost?

After considering the specifications, coverage can cost anywhere from $1,500 to $1 million a year. This cost only accounts for businesses that have five or fewer employees. The amount increases with the size of your company.

Even with rising costs, EPLI is a consideration for your business to prevent any incidents. While the best practices can get you far, actions against your company may be unavoidable. Getting legal counsel can help you prepare in the days that they do come.

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