EPLT
EMPLOYMENT PRACTICES LIABILITY INSURANCE:
A M U S T- H AV E P O L I C Y F O R E V E R Y B U S I N E S S
BY: REECE CAIN
COMMERCIAL INSURANCE SPECIALIST AT CAIN INSURANCE
I
t isn’t a matter of if an organization will
experience an employment practice
related claim; it is only a matter of when.
In fact, according to Advisen, a leader
in data solutions for the commercial
insurance market, an employer with as few as
100 employees can expect a claim once every
three years.
Employment practice related claims are
increasing, and the costs associated with
defending such claims can be staggering.
Perhaps most unnerving is that an
organization doesn’t have to be in the
wrong to face a potential lawsuit. Even the
best corporate policies and procedures may
not deter a lawsuit, making the purchase
of employment practice liability insurance
a crucial and necessary component to a
company’s overall risk management portfolio.
EMPLOYEES EQUAL EXPOSURE
It’s simple. If an organization has employees,
it needs an employment practices liability
insurance (EPLI) policy. These policies
cover the cost of defending EPLI claims
and damages awarded to an employee for
wrongful acts committed by the employer.
However, each EPLI policy has very specific
wording on exactly which wrongful acts
are indeed covered. In general, most EPLI
policies provide the following coverage:
• Defamation
• Discrimination
• Failure to Provide Equal Opportunity
Employment
• Harassment
• Retaliation
• Violation of the Family and Medical Leave
Act (FMLA)
• Wrongful Discipline
• Wrongful Failure to Promote
• Wrongful Termination
The hiring, disciplining, promoting, and
training of employees requires more
human interaction than practically any
other aspect within a business. Because of
this, the exposure to employment practices
liability extends to past, present, and even
prospective employees.
WAGE AND HOUR CLAIMS
A common exclusion on most EPLI policies
is claims related to wage and hour. Laws
pertaining to wage and hour fall under the
Fair Labour Standards Act (FLSA). The Act
establishes minimum wage, overtime pay,
recordkeeping, and child labour standards.
Common claims include jobs which
have been misclassified or the denial of
overtime. And with our ever-improving
technology, claims for “off the clock”
work, ranging from checking emails
to responding to text messages, have
increased. In each scenario, an employee
is paid less than what has been assured to
them under federal law.
Although coverage for wage and hour
claims can be added to an EPLI policy, it
will come at an additional cost. Claims
related to FLSA are on the rise as
employees themselves become more
knowledgeable about their rights under
the Act.
THE THIRD PARTY
In addition to wage and hour claims, third-
party claims are also commonly excluded
from EPLI policies. Also available for an
additional premium, third-party coverage
can protect an organization from outside
vendors, customers, or other individual
claims.
For example, a delivery driver routinely is
sexually harassed by a business’s employee.
If the driver were to file a harassment
lawsuit against the organization, an EPLI
policy which includes third-party coverage
would respond.
In today’s highly litigious environment,
coupled with increased courage by
employees in outing and confronting
discrimination, harassment, and other
inappropriate acts, businesses are exposed
more than ever to a claim. Ensuring your
employment practices liability insurance
policy will meet the exposures of today’s
world has never been more important.
LIMITS AVAILABLE
Employment practices liability coverage
can often be provided as an endorsement
to a business owner’s policy. However, it is
a best practice to have a stand-alone policy
which may provide broader coverage and
not be affected by an underlying policy.
Most stand-alone policies begin with a $1
million limit and increase from there. The
limit of insurance typically includes costs
associated with settlements, judgments, and
legal defence costs. Claims related to wage
and hour (FLSA), third-party, and other
exposures typically have a lower sublimit. It
is important to note limits may be reduced
or their availability shortened during
times of mass staff reductions, mergers, or
acquisitions.
COST OF COVERAGE
The cost of obtaining an employment
practices liability policy is dependent on
many factors including the following:
• Hiring and Firing Procedures
• Management’s Experience
• Number of Employees
• Prior Claims History
• Type of Business
Most policies also include a deductible,
which is an amount that must be paid by
the insured before a policy will respond to
a claim.
Not having an EPLI policy in place not
only exposes an organization to the
obvious costs associated with a claim,
including defence and damages, but
also the nonquantifiable costs. When an
organization becomes entangled in an
employment dispute, morale can decline,
negatively impacting productivity. And in
more extreme scenarios where claims are
made public, a business’s reputation could
be at risk.
The costs associated with not carrying
employment practices liability insurance
outweigh whatever premium your chosen
insurance company wishes to charge. If you
have employees, you need EPLI.
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