Did you know that a claim alleging improper employment practices (such as discrimination) is more likely to happen to your company this year than damage to your property covered by insurance? According to the Hiscox 2015 Guide to Employee Lawsuits, employers have an 11.7% chance of having an employment charge filed against them at some point. Since 2007, the U.S. Equal Employment Opportunities Commission (EEOC) has handled at least 82,700 charges of discrimination each year.
Unfortunately, dealing with these claims also comes with a high price tag as well. Most of these types of claims typically require an attorney and often lead to some payout by the employer. The Hiscox Guide reported that 19% of the claims they studied resulted in some defense and settlement payment with an average total cost of $125,000. Claims that go to trial are even more costly, averaging over $200,000, not including defense costs.
Large and small organizations benefit from Employment Practices Liability (EPL) coverage. This coverage protects the organization and their executives from claims brought by current employees, former employees, applicants, and in some cases independent contractors. Covered claims may allege harassment, discrimination, retaliation, wrongful termination, as well as other acts. The EPL policies also typically respond to charges brought by the EEOC.
Here are a few items to take into consideration when looking at EPL coverage:
Standalone EPL vs. “add-on” coverage: A lot of package carriers add this coverage into their basic property and liability coverage programs. There are a few issues with purchasing the coverage through the package policy. Standalone EPL carriers handle more liability claims, and have specialized attorneys on staff that are experts in employment law. Add-on coverage on a package policy also has inadequate limits, and very restrictive policy language compared to the structure of a standalone policy.
No two policies are the same: There is no “standard” form that EPL carriers use, and no two forms are alike. Policy terms can significantly vary from one carrier to another. It is extremely important to understand the language, what it covers, what the exclusions are, and how to properly endorse the policy.
EPL hotlines: Several EPL carriers offer a free hotline to help answer any employment law related questions you may have. This hotline provides you with the opportunity to get employment law advice, typically from a lawyer, before making a decision that could result in an EPL claim.
Approved defense counsel: Almost all EPL carriers have a designated panel counsel that you choose a law firm from in the event of a claim. You most likely will not be able to use your organization’s regular counsel. This is because the carrier wants to resolve EPL issues quickly, instead of using a large portion of the policy to pay for defense; and carriers typically also have pre-negotiated rates with these firms as well. As stated above, these firms are highly experienced in these types of claims, which is why carriers have pre-approved them for use.
Third-party claims: Not all policies cover third-party claims. These are discrimination, harassment or similar claims brought by someone without an employment-related relationship (for example a vendor, customer, or visitor). Some policies will include this coverage automatically, and others might charge an additional premium for the coverage. It is important to understand what your third party exposure is, and have the coverage added onto your policy if it’s needed.
It is important to know that EPL is not a “one size fits all” type of coverage. Coverage should be written to suit the organization and their industry. Coverage terms can also vary, and be as complex as the EPL claims themselves, so it is also important to utilize an experienced broker who understands this type of risk and can negotiate the policy terms and conditions for you on your behalf.