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The Importance of EPLI Insurance

Businesses are facing unprecedented employment-related risks. Can employers require the COVID-19 vaccine? If your business can’t bring all employees back on site, how do you decide who to bring back and who to furlough?

The environment is ripe for lawsuits. How can you protect yourself and your business?

EPLI insurance is an important part of your risk management strategy. It gives you the resources to defend your business against employee lawsuits.

Find out more about EPLI insurance and how important it is in order to protect your business.

What Is EPLI Insurance?

Employment practices liability insurance (EPLI) protects your business against claims or lawsuits from employees, former employees, and employment candidates regarding their employment relationship with your business.

EPLI policies usually only cover claims from W2 employees. This includes seasonal or temporary workers. Most policies exclude 1099 independent contractors.

An EPLI policy generally covers actions by anyone within the organization, from top management to entry-level workers. EPLI provides coverage against types of lawsuits that include:

  • Sexual harassment
  • Discrimination
  • Wrongful discipline
  • Wrongful termination
  • Retaliation
  • Emotional distress
  • Invasion of privacy
  • Breach of employment contract

The policy will cover legal costs, settlements, and judgments that result from these types of claims. You’re covered whether you win, settle, or lose a case. However, punitive damages and civil or criminal fines are usually excluded.

EPLI policies exclude liabilities that other insurance policies cover. For example, EPLI insurance doesn’t cover lawsuits regarding workplace injuries because they fall under workers’ compensation.

The Importance of EPLI Coverage

EPLI insurance is extremely important for you and your business. Even if you haven’t done anything wrong, a frivolous lawsuit can be very expensive in both time and money. EPLI coverage gives you protection.

Rising Numbers of Lawsuits

As the number of employee lawsuits rises, you need to protect yourself. The US Equal Employment Opportunity Commission (EEOC) received more than 67,000 charges of workplace discrimination in 2020 alone.

Most lawsuits target large corporations. However, small and mid-sized businesses are seeing a growing number of suits.

EPLI coverage is especially important in industries with high employee turnover rates. Employees are more likely to allege discrimination, sexual harassment, or wrongful termination.

Expensive Court Costs and Settlements

Lawsuits and settlements are becoming more and more expensive. The legal costs if the case goes to court can reach hundreds of thousands of dollars. Even if you’re innocent, you have legal defense costs.

These expenses could significantly affect your business. They could even force your business to close.

Get Expert Representation

Depending on the type of EPLI policy you choose, your insurance company will provide you with a pre-approved law firm in the event of a lawsuit. These law firms are experts in defending employment-law claims so you can be sure you’re getting the best and most experienced representation.

You may even benefit from reduced rates on your attorneys’ fees. Insurance providers often negotiate a better hourly rate for their clients.

The claims examiner will usually be an employment-law expert. Their experience and knowledge are helpful if someone sues you.

Risk Management Support

Some EPLI policies include risk management or loss prevention services.

The insurer will provide you with expert consultants. These professionals will evaluate your employment practices. They’ll work with you to develop procedures and processes that reduce your risk of employee lawsuits.

Types of EPLI Insurance

Business liability insurance rarely covers employment practices liability. Some insurers offer EPLI coverage as an endorsement to a business owner’s policy. You can also find EPLI insurance as stand-alone coverage.

Claims-Made Basis

Insurers usually offer EPLI insurance on a claims-made basis. This means that the policy must be in effect when the alleged incident occurred, as well as when the lawsuit was filed, in order for you to be covered. Employment claims often come months or years after the alleged incident, so maintaining coverage is important.

Occurrence Basis

You’ll occasionally have the option of EPLI coverage on an occurrence basis. This type of policy will cover claims for incidents that allegedly occurred during the coverage period. You’ll still be covered even if the suit is filed after your policy has lapsed.

Duty to Defend

EPLI policies have either a duty to defend or a duty to pay defense provision. A duty to defend gives the insurer the right to select defense counsel and direct the defense of a claim. This type of policy can benefit organizations with little experience handling employment law claims.

Duty to Pay (No Duty to Defend)

In a duty to pay policy, the insured business handles claims as it sees fit. This lets you develop your own strategy for handling claims.

EPLI Insurance Cost

The risk of not having EPLI coverage more than outweighs the cost. Your premium will depend on several factors that include:

  • Number and type of employees
  • Industry
  • Employee turnover rate
  • Claims history
  • Coverage and deductible limits

The state where your business is located also affects how much you’ll pay for an EPLI policy. States like New York and California have more legal protection for employees. This makes a lawsuit more likely, which increases the cost of your insurance policy.

Most EPLI policies have coverage limits ranging from $100,000 to $1 million. Your policy will probably also have a deductible. The amount of coverage you need depends on the same factors that determine the cost of your premium.

An insurance broker or advisor can help you choose the best coverage limits for your situation.

Finding the Right EPLI Policy

EPLI insurance is critical for your business. It protects you against risks that your other types of business insurance doesn’t cover.

EPLI policies can also vary widely in their coverage, so comparing several policy options is very important.

The Soden Agency can help you explore your plan choices from top-rated insurance companies in New Jersey. We’re a Trusted Choice Agency, which means you get a broad range of options and the most competitive rates. Our agents will be with you every step of the way, from getting a quote to filing a claim.

Contact us to better protect your business today.