Employment Practices Liability

A popular insurance text starts with, “The growth of federal and state legislation dealing with employment discrimination and sexual harassment, the changing legal views on wrongful termination, and the increasing tendency of aggrieved parties to turn to the courts for settlement of such disputes have caused insurers to specifically exclude coverage for such employment-related claims in the commercial general liability policy.”

To fill this gap, a number of insurers are offering employment practices liability (EPL) coverage as an endorsement to the commercial general liability policy or as a stand-alone policy. Independently developed by each company, the EPL coverage forms vary by company, however, most policies are similar in terms and conditions.

EPL policies are usually written on a claims-made basis, which means that for a claim to be covered, it must occur during the policy term. Extended reporting periods from one to three years can be added for an additional premium.

In addition to damages paid for judgments or settlements, the cost of defense is covered. However, it is usually paid from the limit of liability, not in addition to the limit of liability. Most EPL policies specifically cover back pay. Back pay is commonly awarded to successful claimants in discrimination and wrongful termination actions.

Typically, the definition of “insured” in an EPL policy includes the corporation, its directors and officers, its employees, and, in most policies, its former employees. Some policies limit the definition of “insured” to include only managerial employees.

The deductible for this coverage ranges from $1,000 to $250,000, depending on underwriting factors. One difference from other types of policies is that the EPL policy usually requires the insured to participate in losses exceeding the deductible. The amount that the insured contributes after the deductible has been satisfied is based on the “participation rate.” Participation rates are usually 5 to 10 percent, but can reach as high as 25 percent depending on underwriting factors.

2010 Discriminations Charges

The US Equal Employment Opportunity Commission (EEOC) recently released some very interesting data for the fiscal year of 2010. 99,922 workplace discrimination chargers were filed which set a new record. The types of claims that were filed where:

Retaliation Charges

Race-Related Charges

Sex Harassment

Disability

Age

National Origin

Religion

Equal Pay Act

Genetic Information Nondiscrimination Act

What is even scarier about this number for business owners is that Commercial General Liability (CGL) doesn’t cover these types of claims. Employment Related Practices claims are excluded under a business CGL. In order to have protection for these types of claims you must purchase Employment Related Practices Insurance. Be sure to talk with your insurance agent today about quoting this coverage for your business.

Employment Practices Liability

A poor economy not only hits business owners in the profit/loss area but it also creates added liability exposures. During a down turn in the economy, many employers have to downsize their number of employees. This opens the door for employment practice type liability claims. Wrongful termination claims for things such as age, race and sex discrimination are on the rise. Sadly, a number of these claims are false claims and cost employers thousand to defend themselves. However, with an insurance coverage called Employment Practices Liability (EPLI) you can protect your business from such incidents.

EPLI products will help defend you during these claims and pay for the expenses that result from them. A number of products even provide a hotline for employers to call and get advice on how best to handle a layoff or termination. They will even give you ideas on how to create an employee handbook and other employment related forms such as job applications and termination forms.

Hopefully the economy will rebound soon and as a result employers will start to hire again. Even though this would be a positive thing, there is still a liability exposure during this time of growth. Discrimination claims can still arise during the hiring process. EPLI will also protect employers from discrimination claims by individuals that were not hired, but claim discrimination during the interview process.

Whether it is a downturn or upturn in the economy, employment related claims can happen. Feel free to get in touch with a Fey Insurance Services representative to learn more about how to protect your business.