Employment Practices Liability Insurance

EPLI provides coverage for claims made by employees alleging discrimination (based on sex, race, age or disability, for example), wrongful termination, harassment, and other employment-related issues.

The rise of social media brings new challenges as to how individuals interact with each other. A simple hashtag like #metoo can quickly spread awareness of inappropriate behavior – discrimination, harassment, sexual assault, and more – in the workplace.

Your company must be prepared to quickly address unacceptable behavior in the workplace as soon as it’s discovered. Employment practices liability insurance (EPLI) is designed to mitigate exposure to employment-related lawsuits.

We wrote this guide to help you, the reader, understand both the basics of EPLI insurance as well as some more advanced considerations. Our hope is that you walk away from this article a more empowered buyer, with a better understanding of the risk you can transfer to other parties via the EPLI insurance product.

If you’d like help, we’d invite you to talk with a broker or get started by creating an Embroker account. Our specialists are here to help you secure an EPLI policy that will protect you financially and empower you to resolve employment matters quickly and confidently. For more clarity on pricing, your business will be benchmarked against similar businesses to identify any unforeseen exposures and premium savings opportunities.

Finally, if you are involved with a venture-backed startup, you can get market-leading EPLI insurance in less than 60 seconds through the Embroker Startup Program – click here to get an instant quote.

In 2018, the Equal Employment Opportunity Commission (EEOC) secured approximately $505 million for over 67,860 victims of discrimination in the workplace. According to the federal agency, 84,254 workplace discrimination charges were filed in 2017.

The obvious takeaway from these statistics is that the EEOC is very prepared to investigate employee allegations of discrimination, which is why employment practices liability insurance (EPLI) is so important today for businesses of all sizes.

According to the report, the most common employment-related allegations involved

retaliation
sex
religion
race
age
color
disability
national origin
equal pay

Shifts in our modern society are creating and prioritizing corporate cultures that are based on diversity and inclusion, which has been leading to an increased level of scrutiny on policies, procedures, and workplace behavior.

This simply means that businesses need to pay more attention to employment-related issues by issuing formal policies and procedures, educating their staff, and purchasing an EPL insurance policy.

What is EPL Insurance?

EPLI covers businesses against claims made by employees against employers regarding the violation of their legal rights. The coverage applies to claims that arise under Title VII of the Civil Rights Act or any related legislation. Some common discrimination issues include:

  • Age: A 2009 Supreme Court decision made cases brought under the Age Discrimination in Employment Act harder to win, so the EEOC had been shying away from them. However, in March 2016, Texas Roadhouse paid $12 million to avoid an ADEA trial, which shows that there is no guarantee when it comes to which types of claims agency attorneys may want to proceed with in the future.
  • National Origin: Many EEOC claims in this area involve English-only workplaces. The law is a little confusing, because courts allow such policies in some circumstances and disallow them in others.
  • Religion: Some faiths require their members to abstain from certain behaviors, wear certain clothes, or observe certain holidays. Unless the employer has a really, really good reason for doing otherwise, accommodations are almost mandatory in these instances and lawsuits result when they aren’t granted.
  • Gender: This area is unsettled as well, as the lower appeals courts are split as to whether Title VII applies to sexual orientation, a category that includes transgender persons. A 1989 Supreme Court case, which barred gender stereotyping, may be controlling. In the meantime, the EEOC still files claims under the gender discrimination title.
  • Pregnancy: Paternalistic pregnancy cases have increased under the Pregnancy Discrimination Act. As an example, Company X takes a pregnant woman off the production line because chemicals involved in the job may be dangerous to expecting women. In such a case, Company X arguably violated the PDA and will almost certainly lose at trial.

EPLI also applies in some non-discrimination cases, such as wrongful termination, failure to promote, and wage & hour disputes. Some common non-discrimination issues include:

  • Wrongful Termination: According to FindLaw, “a wrongful termination is any firing that is done in violation of federal, state, or local laws; the terms of an employment agreement; or for reasons that go against public policy.” In addition to discrimination, this may include harassment, retaliation, breach of contract, bread of good faith, breach of fair dealing, etc.
  • Failure to Promote: According the the American Society of Employers, “some managers have the habit of stifling promotions of good employees in order not to lose those employees to other departments. In this situation a manager who doesn’t promote will need the special attention of HR and will likely need manager training.” An example of this claim is the lawsuit between Tina Huang and her former employer Twitter.
  • Wage & Hour: Wage and hour claims are scary and have been the subject of numerous multimillion-dollar class action claims. This is why virtually every employment practices insurer routinely excludes coverage for this category of claims. However, coverage for up to $200,000 of defense costs is available in pockets – if you’re the savviest of buyer and know what to request. Embroker’s proprietary policy automatically includes $200,000 of defense costs with every policy – off the shelf and with no need for negotiation.

What does a Wage & Hour allegation look like? W&H claims typically allege loss under the Fair Labor Standards Act (FLSA). Examples of such claims are:

  • Employee misclassification, which usually involves failure to pay overtime to employees who, under the law, are eligible to receive overtime pay
  • Pay practices violations, which comprise a wide range of claims that do not involve misclassification; e.g. misclassifying employees as independent contractors, not allowing employees to take meal or rest breaks, improper deductions from wages, and not paying employees on a timely basis.

Who Needs Employment Practices Liability Insurance?

In our litigious environment, there are many instances in which employment practices liability insurance is required.

Employment-related risks start the moment an applicant walks in the door or visits the “Careers” section on your website. There are many illegal interview questions, and the applicable law may vary among different office locations. For example, some local and state governments have passed “ban the box” legislation that prohibits questions about criminal history on initial applications, yet in some other areas, these questions are perfectly fine to ask.

During employment, rogue managers are often an issue. If someone makes an inappropriate comment within earshot of an offended worker, the company is usually liable. Most EPLI policies cover these incidents.

Not only that, but former employees do not waive discrimination complaints by accepting a severance package or signing a waiver.

So, if you’re still asking whether you need EPLI or not, the answer is that you probably do.

Does your business perform any of the following actions?

Hire or fire employees
Communicate to or about employees
Demote or promote employees
Manage benefits for employees
Offer raises to employees

If so, then you’ll need EPL coverage.

Why Do Businesses Need EPLI?

There are many reasons why the number of harassment claims seems to be constantly increasing; it’s certainly not a coincidence and correlates with broader societal changes.

Social media has certainly a lot to do with, considering that it is now a lot easier to connect and engage with your coworkers. This also means that it’s a lot easier to harass coworkers, especially with the proposition of cyber bullying being thrown into the equation.

Social media has also provided a voice to the harassed and has made it easier for those who have been harassed at work to speak out about it. The #MeToo movement is a good example of this.

In addition, LGBT and transgender communities are continuing to grow and assimilate into the mainstream, causing people from these groups to commonly encounter discrimination and harassment in the workplace.

According to a preliminary 2018 report on sexual harassment claims by the EEOC, sexual harassment charges increased by more than 12 percent and sexual harassment lawsuits filed by the EEOC’s attorneys increased by 50 percent from the previous year.

Employee lawsuits are on the rise, and even if you’re in the right, the legal costs can still be staggering. That’s why you need to protect your business with EPL insurance no matter what.

What Does EPL Insurance Cover?

Generally speaking, EPLI policies will cover the costs of defending your company against lawsuits, settlements and judgments. As long as the act that was committed is not illegal, the legal costs will be covered regardless of whether the case is won or lost.

These are the types of claims that an EPLI policy (a good one) should be able to cover:

Retaliation

Sexual harassment

Mismanagement of employee benefits

Negligent evaluation

Negligent decisions regarding compensation, promotions or hiring

Wrongful demotion or disciplining of an employee

Wrongful termination of an employee 

Failure to promote

Defamation

Negligent supervision of employees

Invasion of privacy

Discrimination based on race, religion, sex, disability, age, equal pay, national origin, genetic information or pregnancy

Infliction of mental or emotional distress

Deprivation of opportunity

What Doesn’t EPL Insurance Cover?

As we previously mentioned, if the act that your company is being sued for is an illegal one, then the EPLI policy will not cover your costs.

However, there are losses and claims an EPLI policy will not cover, some of which include:

  • Penalties
  • Civil fines
  • Criminal fines
  • Unpaid wages
  • Liabilities for acts of intentional or dishonest wrongdoing
  • Claims related to unemployment benefits
  • Claims related to workers’ compensation
Highly-Publicized Examples of EPLI Insurance at Work

What Is the Difference Between Claims-Made vs. Occurrence Policies?

When it comes to EPLI, many people get confused about the difference between claims-made and occurrence policies. When discussing liability policies, the difference is all about timing and what the so-called trigger is for the coverage. It’s a question of both what must occur in order for the policy to respond and when it should occur.

Still confused? The main difference is what policy period a claim is paid on if and when a claim occurs. Let’s look at an example. Imagine there was a wrongful act that occurred in 2004, but was not found out about until 2018, then:

  • With an occurrence policy, the claim would be paid under the 2004 policy – with the limits and deductibles of the 2004 policy.
  • With a claims-made policy, the claim would be paid under the 2018 policy – with the limits and deductibles of the 2018 policy.

What’s most important in a claims-made policy is the so-called “retroactive date.” The retroactive date is the start date of the claims-made policy that you either bought or renewed. This means that you are covered for any incident, as long as it occurred either on or after the retroactive date and was reported to the insurance company within the policy period.

Most EPLI policies are claims-made, as are most errors & omissions and directors & officers insurance policies.

EPLI Costs

Perhaps the most logical correlated factor to EPLI risk is organizational size. All things equal, the more employees a company has, the more likely it is that one of the employees will find some discriminatory basis for a lawsuit. That said, it’s best for companies to consider the strength of their HR policies and procedures as a means to prevent claims and reduce risks.

In reality, many insurance underwriters are looking intensely at your organization’s investment in HR talent, policies, and procedures. Organizations that have not displayed this commitment represent a more significant risk and will be charged more than their peers, or worse off be denied coverage altogether. EPLI pricing is an exercise in evaluating the strength of HR and it’s policies and procedures, not simply a tiered employee count approach. Naturally, your claims history will affect premiums as well. If you haven’t had any claims over the last three years, your premium will be lower.

Tips for Preventing Employee Lawsuits

While there is certainly no way to truly prevent employment related lawsuits, there are things that you can do as a business owner to minimize the risk and decrease the chances of an employee claim.

One obvious tip is to have a comprehensive handbook describing proper behavior at the workplace and never deviate from its policies. Be sure to educate your employees and provide adequate training.

If you are creating workplace behavior policies, be sure to enforce zero-tolerance related to harassment and discrimination. Don’t forget to make it easy for people to report problems as well. Complaint investigation is also very important. Take all employment discrimination complaints seriously and launch a thorough investigation that gets resolved quickly.

Getting Started

Now that you have a better understanding of EPL insurance, you may be wondering how all of this affects your business and where to go from here.

Chat with one of our expert brokers to learn more about your EPLI needs or if you prefer to get started on intelligent quotes, you can create an Embroker account today.

Having a quality EPL insurance policy in place and an expert broker who can help you navigate the terms and conditions will protect you financially and empower you to resolve employment matters quickly and confidentially.

Embroker is the easiest way to intelligently insure any business. We’re here to help!