Three Reasons Your Business Needs Employment Practices Liability Insurance

Category: Business Insurance

Since the 1990s, lawsuits filed by employees against current, former or even prospective employers have been on the rise. While most of these lawsuits are filed against large companies, no company is immune.

Employment practices liability (EPL) insurance helps protect against the risk of employment-related lawsuits.

What is EPL Insurance?

EPL insurance provides protection for business owners against claims and lawsuits that are brought against a business, its officers or directors, or its employees and managers. It covers claims for discrimination, wrongful termination, sexual harassment and other employment-related allegations. It is needed as soon as you hire employees.

An EPL policy will reimburse your company for the costs of defending a lawsuit in court and for judgments and settlements. It will cover legal costs whether you win or lose. Typically, EPL insurance will not pay for punitive damages or civil or criminal fines.

EPL insurance will generally cover the following types of claims against a business:

  • Gender, age and other types of discrimination
  • Sexual harassment
  • Wrongful termination or discipline
  • Negligent compensation, promotion or hiring decisions
  • Breach of contract for employment
  • Emotional distress or mental anguish
  • Invasion of privacy
  • Libel or slander 
  • Employee benefits mismanagement

Three Reasons You Need EPL Insurance

1) Increasing number of employment-related lawsuits and claims.

The number of employment-related lawsuits began increasing in the early 1990s following the passage of legislation like the Family and Medical Leave Act and the Americans with Disabilities Act. Companies are vulnerable from the pre-hire process through the exit interview, even if a prospective employee was never hired or was hired but was only an employee for a short period of time.

2) Standard liability insurance policies do not provide adequate coverage for employment related risks.

Some directors and officers liability policies contain some employment practices liability insurance coverage, but it will be limited to claims made against directors and officers (not other employees) and may have more exclusions than a standalone EPL policy. Since companies of all sizes now need EPL insurance, some insurers offer EPL coverage as an endorsement to a business owners policy, while others offer it only as a standalone product.

Most commercial general liability policies and workers’ compensation policies specifically exclude coverage for these types of claims.

3) Employment-related lawsuits can happen to any firm.

Your company’s small size or limited number of employees does not make it immune from employment-related lawsuits. Every employer faces the risk of being a target of legal action from past, present and prospective employees. Even if the claims are groundless or fraudulent, defending against them will be very expensive.

New and fast growing companies are especially vulnerable to employment-related claims. These organizations may not yet have developed procedures for hiring, firing and disciplining employees—leaving them open to mistakes and potential lawsuits.

EPL insurance is vital to protecting your business against claims brought by employees. Companies with the best intentions and most comprehensive non-discrimination procedures are still at risk. Is your business protected with EPL insurance? Why or why not?

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