No organization is fully immune to labor disputes rising across all industries. There can be a heavy price to pay with each employee’s claim of discrimination or harassment that doesn’t go your way at the Equal Employment Opportunity Commission (EEOC). Here’s a look at how you can mitigate this risk in your organization with employment practices liability insurance (EPLI).
Differences Between EPLI and Related Insurance Policies
If you’re sued for an employment-related issue, EPLI can cover the cost of defending your organization against the claim. It can also pay any court-awarded compensatory damages. People that can file such a claim against your company include:
- Unsuccessful job applicants
- Current or former employees
EPLI covers employment malpractices, such as:
- Wrongful termination
However, the workplace/business risks below are usually covered by policies other than EPLI:
- Fair Labor Standards Act, such as denying overtime pay
- The National Labor Relations Act
- Directors and officers (protects company directors and officers)
- Errors and omissions (covers professionals for client claims like substandard work)
- Commercial general liability (protects businesses against property damage or bodily injury claims)
When to Purchase EPLI
The decision to purchase EPLI depends on various factors, including how vulnerable your company is to employment malpractice claims. About 10% of U.S. companies face this threat day-to-day. Small and medium-sized businesses fighting such an accusation incur losses of up to $160,000 on average. As you assess your organization’s risk, consider your business location, EPLI deductible, and similar claims/losses history. It’s equally crucial to scrutinize your preventive employment policies for any existing exposure.
How to Get the Right EPLI Policy for Your Needs
Negotiate a level of control you’re comfortable with choosing your legal defense team and strategy. These contractual terms are key when negotiating a good employment practices liability insurance policy:
- Duty to defend:
Your insurer will cover all liability and attorney fees to the applicable limit. They have the right to select your defense lawyers and strategies.
- Duty to reimburse:
On this term, your insurer isn’t obligated to defend claims against your organization. The policy would pay for all covered liability costs. This arrangement gives you a greater say over the selection of your defense lawyers.
- Mutual selection:
You can choose your defense attorney on this term. However, you will incur extra litigation costs above standard industry rates.
When to Report an EPLI Claim
You should report an EPLI claim as soon as you’re notified of it. However, you should consider your self-insured retention (SIR) amount before filing a claim, if there’s any mentioned in the policy. If the claim is smaller than the SIR amount, you’re better off settling it out of pocket. Also, it’s important to notify your insurer of an issue you’re aware of that could potentially become a claim.
Common EPLI Mistakes to Avoid
Watch out for these potentially critical errors regarding EPLI coverage:
- Lack of awareness of your company’s EPLI coverage status
- Failure to review policies and renegotiate terms during renewal
- Poor understanding of the coverage period
- Occasional inability to acknowledge events that constitute a claim or require reporting
- Relying on the wrong policies to cover employment practices claims
Understanding how employment practices insurance works are crucial for minimizing your company’s risk exposure. For professional assistance in assessing your organization’s EPLI requirements, contact our reputable agents at CF&P Insurance Brokers today. Our team has years of experience and expertise to help you maximize your protection against adverse employee claims.