When it comes to commercial insurance, most business owners are very familiar with what many would agree are the “staple” coverage areas required to operate one’s business (e.g. General Liability, Workers’ Compensation, Automobile Insurance, Umbrella Liability, etc.). That said, one area of very important insurance coverage that does not typically receive equal attention is Employment Practices Liability Insurance (EPLI). EPLI has been, and will continue to be, a coverage area that should be considered crucial to any business with employees.
So what exactly is Employment Practices Liability?
Employment Practices Liability Insurance (EPLI) is defined by the International Risk Management Institute (IRMI) as, “a type of liability insurance covering wrongful acts arising from the employment process.” In short, EPLI coverage would generally be triggered by any allegation that a “wrongful employment act” was committed by an employer, including (but not limited to) the following exampes:
- Wrongful Termination
- Workplace Tort (e.g. wrongful deprivation of career opportunity)
- Negligent violation of certain state or federal employment laws
One very important point to consider is that Employment Practices Liability Insurance provides coverage defense costs in addition to any settlement or judgment in the event of a covered claim. In other words, a claim does not need to be valid in order to trigger coverage; an EPLI policy will provide coverage for the cost to defend oneself in the event of all qualifying employment suits, including those that turn out to be frivolous.
Coverage can also be endorsed (amended) to include coverage for alleged “Third Party Wrongful Act(s),” which are generally defined as allegations of discrimination or harassment toward some “third party” – i.e. a non-employee. Per United States Liability Insurance (USLI), a leading EPLI carrier, the definition of a “third party” is “any person(s) with whom an Insured in their capacity as such interacts while the Insured is performing duties related to the conduct of the Organization’s business.” In practice, this would generally apply to customers, vendors or subcontractors.
Additional coverage enhancements are available that address claims alleging violations of the Fair Labor Standards Act (i.e. wage/hour disputes) and certain costs associated with illegal alien investigative proceedings.
It is important to note that many standard insurance carriers offer some limited form of EPLI coverage as an addition/endorsement to a Commercial Package Policy (CPP); that said, purchasing EPLI as part of a CPP may result relatively low limits and narrow coverage compared to if one purchases a specialty EPLI policy (or a Management Liability policy that includes EPLI).
All businesses that have employees are at risk of employment-related claims, and coverage is often very affordable for small employers. Further, many EPLI carriers offer a free legal/HR hotline and discounted background check services for policyholders.
To learn more about EPLI and other insurance-related topics, please contact NorthStar’s team to schedule a consultation.