EPLI Business Owner Policy: Why Should You Have Coverage?

If you own a business and employ even a single person, you are at risk for an employment-related claim. Such suits devastate businesses. Without protection, your business assets, and possibly even your personal assets, are vulnerable. Learn about how an employment practice liability insurance (EPLI) policy can protect your company.

Employment Practices Liability Insurance, commonly referred to as EPLI, protects you from claims and lawsuits brought by employees, including those for wrongful termination and harassment.

What is Employment Practices Liability Insurance?

EPLI is a policy that protects businesses against a wide variety of employee claims, including:

  • Breach of contract (typically resulting from a rescinded job offer)Red button with Business insurance text San Tan Insurance
  • Discrimination, such as age, gender, and religion
  • Emotional distress and mental anguish
  • Invasion of privacy
  • Libel and slander
  • Mismanagement of employee benefits
  • Negligence in compensation, hiring, and promotion
  • Sexual harassment
  • Wrongful termination

These types of lawsuits carry enormous consequences and can topple a business without adequate coverage. The business owner doesn’t even need to have done something wrong to pay the price. Suits filed against employees, managers, and officers of the company also leave the business’s assets vulnerable.

EPLI policies differ from D&O liability insurance, which typically covers only the directors and officers of an organization.

Common EPLI Coverage

In general, EPLI policies cover claims reported within the dates specified in the policy. That means that claims made after the policy’s termination date are usually not covered, even if the action instigating the claim occurred during the policy’s effective dates. These policies typically include a date range for any events that lead to a claim, as well. Policy terms vary by insurer, so ask your agent to explain these terms.

Most EPLI policies do not include coverage for criminal conduct. Your policy may also include certain exclusions, such as acquisitions, mergers, and layoffs due to work force reductions.

EPLI coverage typically starts at $1 million and extends to $25 million, depending on the insurer. This coverage typically includes judgments, settlements, and legal defense. Finally, most EPLI insurers charge a deductible for any claims.

The Cost of Not Having EPLI

Employee lawsuits are expensive, stressful, and time-consuming. It can take upwards of two years to settle one of these suits, especially if the case goes to trial. In court costs and legal fees, you’ll pay between $10,000 and $50,000, on average, for a case that settles out of court. You’ll pay upwards of $200,000 for one that goes to trial. Even if the judge dismisses the case, you can still expect it to cost you $10,000 or more in legal fees.

A single lawsuit ensures your EPLI policy pays for itself. When it comes to running a business, the question is when you face a claim, not if.

The cost of your premium depends on a variety of factors, but relies mainly the amount of coverage you choose and the number of people you employ. You also receive discounts for certain practices (like the good driver discounts many auto insurers offer). You may see higher premiums if your business has any history of EEOC complaints or lawsuits.

How Can You Reduce Your Liability Risk?

Your risk of employment-related claims begins with the first interview you conduct, as this person may file a suit for discrimination or negligence in hiring if he or she does not get the job. Once you hire an employee, the risk becomes even greater.

Talk to your insurance agent to determine your level of risk. You can lower your risk by establishing – and following – policies and procedures around hiring, managing, and terminating employees.

Before Hiring

Start by developing job descriptions for every position, clearly defining skills and performance expectations. Include verbiage in your employment applications stating that employment is at-will. Avoid questions that indicate age, such as year graduated from high school or college, to help protect you against age discrimination claims.

A screening process lowers your risk of interviewing unsuitable candidates. You should also have a standard interview process for every position, with each candidate answering the same set of questions and being held to the same standards. Before making any employment offer, conduct a thorough background check. Always speak to references before making a job offer. Include any employment contingencies in your offer letters, as well as verbiage that offers may be rescinded at any time.

After Hiring

Create an employee handbook detailing all policies and procedures around employee expectations, how the business handles discipline, EEO statement, etc. Give a copy to every new hire, and require them to sign a statement that they received said handbook.

Conduct annual performance reviews (at a minimum) and include ratings and manager’s notes in the employee’s file. In addition, keep records of any disciplinary actions, in both the employee’s file and his or her manager’s file. Keep records of any employee complaints, as well, including management response to those complaints.

Institute a zero-tolerance policy regarding harassment and discrimination, communicating this policy to every employee each year, with a signed statement that they understand this policy.

Finally, create an environment that encourages employees to report any issues with either management or peers. Addressing complaints is much cheaper (and easier) than litigating them.

Understand the Laws Around Employee Rights

One of the best ways to protect yourself is knowledge. The United States has passed a number of laws around employee rights. Make sure you understand these laws to guard against accidentally breaking any of them.

If you have questions about employment practices liability insurance, or would like a free quote, contact the team at San Tan Insurance today.