Let's be honest - running a business is difficult. It takes an incredible amount of time and energy to keep your organization on the ground. It also exposes you to a huge amount of liability.
One of the biggest liabilities that businesses are exposed to has to do with their employees. While employees, in a sense, make the business world go round, they also create liabilities for their employers.
To protect against employee liabilities, many employers are investing in employment practices liability insurance. If you're interested in learning what this insurance is and how it can help you, keep reading.
Who Is Employment Practices Liability Insurance For?
With over 1.2 million employer businesses in Canada, having protection against employee liability is a must for business owners. An employment practices liability insurance policy covers the costs and losses from employment claims.
These claims include hour and wage disputes, unlawful termination claims, and allegations of discrimination or harassment. They're issues that can happen to anybody, and in fact, do happen all the time.
The reality is that any business owner who has employees needs to invest in EPLI. Doing so helps them protect themselves against these issues and more.
What Does Employment Practices Liability Insurance Cover?
Employment practices liability insurance policies protect managers and officers, employees, independent contractors, and the organization itself. The protection offers coverage for settlements and legal defense costs.
There are several different issues that employment practices liability insurance covers, including:
- Sexual harassment
- Bullying and hostile work environment concerns
- Discrimination about age, race, sex, or any other characteristic
- Wrongful discipline and wrongful termination
- Mismanagement of employee benefits
- Breach of employment contract
- Defamation
- Violations of common employment laws
- Deprivation of a career opportunity
- Failure to promote or employ
- Privacy violations
With so many issues falling under the umbrella of EPLI, it's no wonder business owners are taking advantage of these policies. They allow business leaders and employees alike to protect themselves from written demands, lawsuits, and EEOC charges.
Types of Employment Practices Liability Insurance
There are several different types of employment practices liability insurance that business owners can take advantage of. Knowing the different types will help you make a decision about which policy makes sense for you.
Broad Coverage
Broad coverage EPLI policies are designed to cover a wide range of EPLI claims. These policies protect business owners from numerous claims that occur in the workplace.
Broad coverage policies are a good choice for businesses because they offer multiple protections. With broad coverage, it's much easier for businesses to protect themselves against numerous types of liabilities.
Third-Party Coverage
Third-party coverage is a policy that protects businesses against claims brought against their employees by nonemployees. This could mean customers, vendors, and clients.
Businesses need to invest in this type of coverage because these claims aren't covered under commercial general liability insurance policies. Without third-party coverage, businesses are responsible for high legal claims and punitive damages.
Independent Contractor
If your business works with independent contractors, you need this type of EPLI coverage. EPLI independent contractor coverage helps protect employers against claims that are brought forth against any independent contractors in their organization.
Most broad coverage EPLI policies do not include coverage for independent contractors. If you have these types of employees in your business, it's important to get separate EPLI policies for them to ensure you're protected.
What Is Not Covered by Employment Practices Liability Insurance?
While there are plenty of things that are covered under an employment practices liability insurance policy, there are also a few things that aren't covered.
It's important to know what these are in order to make sure that you're prepared for every situation. Otherwise, you might think that your EPLI plan covers you for certain damages when you're actually liable!
EPLI policies usually do not cover wage and hour claims. They also do not usually cover Worker's Compensation law claims. You might need to take out a separate policy to cover these types of claims.
Additional claims that aren't covered under EPLI include violations of the FLSA, NLRA, OSHA, and ERISA. Claims under the Work Adjustment and Retraining Notification Act are also excluded.
It's also important to note that EPLI policies don't cover punitive damages or claims related to criminal acts. These issues are much more serious and will require additional legal support.
What to Look for in a Company that Offers This Product
If you're ready to sign up for an EPLI policy, you're making a good decision. To help you choose a company that's truly beneficial, you'll want to look for the following things.
A Claims Made Policy
One of the first things to keep your eye out for in an EPLI policy is how it is written. Most policies provide coverage only if an individual makes and reports a claim during a policy period.
Any issues that take place outside of the policy period or are not reported are not eligible for coverage. This can leave some employers with a nasty surprise if they don't carefully read their policy.
When looking for an employment practices liability insurance plan, look for how their policy is carried out. Check to see if they offer an extended reporting period.
Definition of Insured
Before signing any paperwork, make sure you carefully read what your EPLI policy defines as insured. The definition of insured can change depending on your policy and might not include everyone you think it does.
You'll need to read exactly who your policy states as insured. Remember, independent contractors and third parties are not typically covered under broad insurance plans.
The definition of insured under your EPLI plan could cause you to require additional coverage. Or, it could mean you need to take out a different type of policy to stay protected.
Definition of a Claim
You also need to make sure to look into what your chosen policy defines as a claim. Some policies have a very narrow definition of a claim so that they can avoid paying out on your policy.
Make sure that you look at what your chosen provider defines as a claim. A few examples of claims include:
- Judicial filings
- Civil filings
- Administrative filings
- Arbitration proceedings
- Regulatory filings
- Alternative dispute filings
- Informal written demands
You should know that most plans will not include collective bargaining agreement proceedings as part of their claims definition. Be sure to double-check this on your own policy.
Definition of Wrongful Acts
You might think that a wrongful act includes anything that violates wrongdoing within your business. This isn't always the case though.
Wrongful acts can include a wide range of issues. Your insurance policy should include any action that results in employment liability as a wrongful act.
A few examples of common wrongful acts under EPLI policies include:
- Wrongful deprivation of career opportunities
- Failure to implement or enforce employment policies
- Negligent supervision
Carefully read through your entire policy before signing any official documents. You want to make sure you're fully protected and don't need to get extra insurance coverage down the road.
Definitions of Losses
EPLI policies pay for your company's losses. However, they can define loss in many different ways.
Make sure to verify what your EPLI policy considers a loss. Look for the following considerations:
- Damages
- Judgments
- Front pay
- Back pay
- Defense costs
- Settlements
Deductibles
Another thing to look for in an EPLI policy, aside from definitions, is your deductible. Deductibles will vary based on how much of a premium you are willing to pay.
Many employers make the mistake of purchasing policies with low premiums and high deductibles. They feel that it's better to save money on monthly costs.
However, most employment claims are resolved for only a small cost. If you have a high deductible, your plan may not pay out until your deductible is used up, leaving you with large sums of money to shell out.
Choice of Counsel
Some insurance policies allow you to choose your own defense counsel. Others will provide you with a lawyer of their choosing.
If you can, find an insurance policy that allows you to select your own lawyer. This is beneficial because it ensures that you're able to select someone who has experience with employment laws.
You'll also benefit from being able to select a lawyer who is familiar with your business. He or she will have expert knowledge about how your company works that could be used for your defense.
Settlement Procedure
One of the last things to look for when choosing an EPLI policy is the company's settlement procedure. Some policies will allow you to settle the claim yourself.
Before you attempt to settle your own claims, you'll need to provide the company with written consent. If you don't, the company may not provide you with your benefits.
That means that the company won't pay for any settlements that exceed your refused settlement offer. You could end up paying huge sums of money and losing the benefit of your insurance coverage.
Typical Costs
EPLI insurance policies are not offered at one rate across the industry. Instead, you can expect to pay different rates depending on a number of factors.
For one, the number of employees you have will affect your costs. The more employees you have, the more you can expect to pay.
Additionally, high turnover rates can cause your EPLI costs to rise. Higher turnover means that there is a higher likelihood that you have to deal with EPLI claims, which is why insurance providers charge more.
Your team's hiring and firing practices may also affect your premiums. EPLI providers usually investigate your practices to see if they could cause wrongful termination or other claims. Depending on what they find, the insurance company will adjust your rates.
If you have a history of EPLI claims, you'll likely pay more for a policy, too.
Finally, the coverage amount and deductible of your policy will affect your rates. Higher coverage amounts mean higher EPLI rates while higher deductibles typically mean lower premiums.
Here are a few average premium rates to help you get an idea of what EPLI will cost:
- 10 Employees or Less: $800 - $2000
- 11-50 Employees: $2000-$4500
- 51-100 Employees $4000-$6500
- 100-250 Employees: $6000-$10000
- More Than 250 Employees: $15000-$20000
How to Save Money on Employment Practices Liability Insurance
If those costs seem a bit high, don't panic. There are a few things you can do to save some money on your EPLI coverage.
For one, you can pay the entire premium upfront instead of paying in monthly installments. Even though monthly installments are more appealing from the offset, most insurance providers offer discounts if you're willing to pay the full amount upfront.
Another way to reduce your EPLI costs is to be proactive with risk management. Businesses without claims history are usually offered lower insurance rates.
To help manage risk and ensure your claims history remains squeaky clean, think about creating a risk management plan. In your plan, you can take actions such as:
- Offering training on harassment prevention
- Ensuring the strength of HR department
- Forming internal policies for firing and hiring procedures
- Responding swiftly to any harassment claims
These little actions can go a long way in helping your business avoid EPLI issues and lower your premiums.
The Takeaway
Employment practices liability insurance is important for protecting yourself and your business. It's a way of ensuring that when things go awry, you and your business aren't stuck dealing with lengthy lawsuits or hefty payouts.
Ready to speak to an expert on EPLI? Connect with our partners over at APOLLO.
