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Are You Insured Against Employee Lawsuits?

You know the importance of having a solid business plan. Does your business plan include Employment Practices Liability Insurance (EPLI)? If not, your company could have unexpected financial expenses in the future that would affect your ongoing operations.

It is an unfortunate fact that employers are being sued by their employees in today’s litigious society. Employers are subject to legal action from former, current, and future employees. Claims filed with the Equal Employment Opportunity Commission (EEOC), as well as law suits, are on the rise.

EPLI coverage can mitigate the high cost of defense, as well as specific damages you may incur, due to an employee making a claim against you. An insurance program may include coverage for sexual harassment, discrimination, wrongful termination, failure to hire, retaliation, failure to promote/ grant tenure, wrongful demotion and deprivation of career opportunity.

Employee-related claims are costly, time consuming and may damage your reputation, even if they are groundless or false. An Employment Practices policy provides coverage for an employer’s legal fees, whether the employer wins or loses the case. The cost for defense can be the single largest expense associated with an employment practices claim.

Employment Practices coverage is typically not included in your General Liability Insurance Policy. Your insurance agent should be offering this coverage to you as a stand alone policy. It is also available in a package of options that may include other cov-erages such as directors and officers liability (D&O) and fiduciary liability. Care must be given in deciding whether you want to have shared limits for all of these coverages or separate limits.

Here are some other key things to consider in your Employment Practices Liability policy:

• Does the policy have a “duty-to-defend” or a “duty-to-pay” provision? A duty-to-defend provision gives the insurance company control of the defense, including selecting the attorney. A duty-to-pay provision allows the employer to control its own defense, including selecting its own attorney, subject to approval by the insurance company.

• Are defense costs “inside” or “outside” the limits of liability stated on the policy? Defense costs inside the limit means that legal costs are included in the coverage limit stated on the policy. Defense costs outside the limit means that legal costs are covered in addition to damages covered within the limits stated on the policy.

• Is there a “prior-acts” exclusion in the policy? Employers are often sued a year or more after the departure of a disgruntled employee. Without prior-acts coverage, you may not be insured for that claim. You need to know the retroactive date when coverage for prior acts begins.

• Are punitive damages included or excluded? In some policies, punitive damages may be available, depending on the insurance company and what is allowed by state and federal laws. However, more and more claimants are being awarded punitive damages in addition to the amount awarded for compensatory damages.

• Is there third party coverage? This provides coverage for claims brought forth by persons other than your direct employees, such as leased employees and independent contractors. Third-party coverage can also cover claims made by customers against your employees for wrongful conduct, such as sexual harassment or discrimination and can be especially valuable in customer-intensive businesses.

When it comes to protecting your company against employee-related claims, what you don’t know about EPLI may cost you unnecessary time
and money.

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