Agency Blog

Why Does Your Business Need Employment Practices Liability Insurance?

Lawsuits filed by employees against current, former and even prospective employers have been on the rise since the 1990s. No company, large or small, is immune from these types of accusations and lawsuits. How can you protect your business? Employment practices liability insurance (EPLI) helps protect against the risk of employment-related lawsuits.

EPLI Basics

EPLI provides protection for business owners against claims and lawsuits that are brought against a business, its officers or directors or its employees and managers. It covers claims made for discrimination, wrongful termination, sexual harassment and other employment-related allegations. Any business that has employees needs this type of coverage.

Employment practices liability insurance will reimburse your company for the costs of defending a lawsuit in court and for any judgments or settlements that the business is required to pay. Your EPLI policy will pay whether you win or lose your case, but it will not pay for punitive damages or civil or criminal fines.

EPLI generally covers the following types of claims filed against your business:

  • Gender, age and other types of discrimination
  • Sexual harassment
  • Wrongful termination or discipline
  • Negligent compensation, promotion or hiring decisions
  • Emotional distress or mental anguish
  • Invasion of privacy
  • Libel or slander
  • Employee benefits mismanagement

Why Do You Need EPLI for Your Business?

You may think that you do not need this type of coverage or that your other business insurance policies provide adequate coverage for these types of situations. Think again.

The number of employment-related lawsuits began increasing in the early 1990s following legislation such as the Family and Medical Leave Act and the Americans with Disabilities Act. Companies are now vulnerable to lawsuits from the pre-hire process through the exit interview, even if a prospective employee was never hired or was hired but only employed by you for a short period of time.

Most commercial general liability (CGL) policies and workers’ compensation policies specifically exclude coverage for these types of claims. Some directors and officers liability policies contain some coverage for employment practices liability claims, but this coverage is limited to claims made against directors and officers and excludes coverage for claims made against other employees. To enhance your coverage, you need employment practices liability coverage added to a business owners policy as an endorsement, or a standalone policy that provides comprehensive coverage.

Remember that even if you have a small business with a limited number of employees, you are not immune from employment-related lawsuits. Every employer faces the risk of being targeted by past, present and prospective employees. And even if the claims are groundless, you must undertake the costly process of defending against them.

Start-ups and fast growing companies can be especially vulnerable to employment-related claims. These types of firms may have undeveloped or under-developed procedures for hiring, firing and disciplining employees, leaving them open to making mistakes that result in lawsuits.

Employment practices liability insurance is essential protection for your business from claims brought by past, current or even prospective employees. Even with the best intentions and most comprehensive non-discrimination procedures, you or a well-meaning employee can make a mistake or simply be the target of a disgruntled person.

Is your business protected from employment-related lawsuits? Have you even considered the importance of EPLI? Want to learn more?

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