Q: Do I need EPL (Employment Practices Liability) insurance?
A: EPL is very expensive coverage, but it is essential if you employ recruiters, have more than one office, place temps or contractors, or are an absentee owner. It covers costs of defense (the “duty to defend”), has the indemnity (claim coverage) provision, and a deductible.
It covers everything from discrimination to wrongful termination claims. There are usually many witnesses, the cases can be complicated, and government agencies are often involved. So the costs of defense can be high.
In employee lawsuits, owners and managers are typically named as defendants. Having this insurance may either give you protection or motivate plaintiffs to focus on corporate responsibility — because they know the “deep pockets” of insurance will be involved.
Not only are the costs of defense high, but the claims can be astronomical. Back pay is much less than front pay which is theoretically unlimited. The case law usually limits it to three years, but decisions vary widely. Fines, penalties, and taxes are often added.
If you risk this, check with your broker. Review the costs and coverage, carefully read the policies yourself, and select the highest deductible you can withstand. (Don’t worry about which carrier you use, but make sure it’s one with sufficient reserves.)
3 comments
Michele Jan 15, 2010 at 10:45 am
As a small business that offers small business support I see few small businesses with EPL insurance. It is astronomical in cost, especially if the small business is under 2 years old. Apparently there is no tract record and insurance rates <2 years equate to high risk. I have to wonder about this. Just how many small businesses <2 years gets sued? There are numbers to show how many <2 fail but this number is not rendered by law suits. I tend to think the number is nill or close to it which translates to insurance companies selling fear to small business again and taking advantage of small business again. Frankly I don't see a need for EPL in small business circles as a practical matter; the risk isn't as real as expressed, the motivation is primarily set upon paying high insurance rates to cover high lawyer fees. Small businesses are better protected if they manage risk and liability well and internally and focus on relationship building. Nothing about EPL speaks to either and instead speaks to mismanagement and ignornance as a payoff for insurance companies and lawyers. Contracts that settle by arbitration are better suited for small business.
Michael Thompson Jan 20, 2010 at 9:25 pm
I am an Ohio based independent agent and have placed numerous EPL policies for my clients ranging from Doctors offices to Non-Profits to Auto Repair garages.
I’m surprised that both the author and Michelle consider this coverage as expensive. Every single one of my clients whom have asked for a proposal has purchased this important coverage. The biggest challenge I have is getting my clients to recognize that they could be sued for discrimination, harrassment, hostile workplace, age or sexual situations.
I normally see premiums range start at $100 per employee per year. I disagree that the employers should choose a high deductible. In my experience this will only yield a nominal (10% discount).
My advise on purchasing EPLI policies is as follows:
1. buy the coverage from a carrier that offers s specialized standalone policy. If you buy this from your General Liability carrier the premium will be more expensive and offer inferior coverage than a specialized policy.
2. purchase third party coverage that provides coverage for claims alledged by customers, vendors or visitors to your business. I sold this to one of my garage customers by painting this scenerio.
“A 20 something woman’s car breaks down on a Friday night. A tow truck shows up and the driver hits on the driver while driving her home. She feels threatened and sues the towing company for unwanted sexual advances”
3. purchase defense costs “outside the limit” so defense costs do not reduce the money available to settle a claim.
mary Jan 27, 2010 at 8:17 pm
I am just starting my own medical search group (only direct-hire for now)and am unsure what to do for EPL. I will work as a sole proprietor, from my home, until I can form an LLC. I will have no employees. Do I need this coverage? My personal assets are very limited and I owe more on my house than it’s worth! Trying times… Thank you.