Employment Practices Liability Insurance: Risks, Programs, Costs & More
July 27, 2020
In 2020, Employment Practices Liability Insurance (EPLI), which protects employers from claims due to wrongful acts arising from the employment process, is virtually essential for business owners, both large and small. Changes in the social and cultural climate are on the rise in the modern working environment. In recent years, inspired by the #MeToo and similar movements, there has been a barrage of high-profile and widely publicized employee liability lawsuits in the media. The result is a sharp increase in companies seeking to protect their assets and reputation with EPLI insurance basics protection.
As much as employees are rightfully valued as the lifeblood of most businesses, from the moment they interview until they terminate, they also represent a legal minefield for their employers. These statistics from the U.S. Equal Employment Opportunity Commission (EEOC) show why. In 2018, the EEOC processed and resolved 90,558 charges of employment discrimination for a total of $505 million paid out to victims, including government and private sector places of business. Of all EPLI-related lawsuits, more than 40% were filed against private sector companies with fewer than 100 employees—the litigious environment surrounding employment practices fuels trends for EPLI and professional employer risk management services.
What is Employment Practices Insurance?
EPLI is liability insurance designed to cover employers from unlawful or unjust acts that may occur at any point of interaction with employees and potential employees. Primarily, employers have risk exposure to employment practice claims during the entire continuum of relations with their employees, from interviewing to termination and beyond.
The most frequent types of claims covered under EPLI policies include:
Discrimination (typically based on sex, race, age, or disability)
EPLI policies also cover claims for other types of inappropriate workplace conduct, including (but not limited to) employment-related:
Invasion of privacy
Failure to promote
Deprivation of a career opportunity
What Does Employment Practices Insurance Cover?
EPLI policies are usually written on a claims-made basis, which means "shrinking limits" provisions are invoked. For example, in EPLI cases, the insurer payment of defense costs—which are often a substantial part of a claim—reduces the policy's limits. By comparison, commercial general liability (CGL) policies cover defense costs in addition to policy limits. EPLI is stand-alone coverage. However, it is often included in management liability program insurance. Such programs also include directors and officers (D&O), fiduciary liability insurance, and management liability to cover as many employment practices liabilities as possible.
Exclusions to Employment Practices Insurance
Standard exclusions to coverage under EPLI policies include:
Claims of bodily injury and property damage
Civil and criminal fines
Liabilities for acts of intentional or dishonest wrongdoing
Other exclusions include claims made under these Federal and state laws, and provisions:
Fair Labor Standards Act (FLSA) and comparable state wage and hour laws
State unemployment insurance
Workers' compensation statutes
Occupational Safety and Health Act (OSHA)
Consolidated Omnibus Budget Reconciliation Act (COBRA)
National Labor Relations Act (NLRA)
Worker Adjustment and Retraining Notification Act (WARN)
Who Needs Employment Practices Insurance
Today, employer liability insurance is a recommended coverage for any business that has more than a few employees. Employment practices insurance is strongly recommended for high-growth startups that often employ a younger workforce in environments that encourage interaction among employees. While instituting an EPLI program is not a legal requirement, given the rising volume and costs of employment practices litigation, it is a prudent choice for most businesses. That's because from giant corporations to the smallest company that hires employees, there is a significant risk of expensive Employment Practices Liability (EPL) exposure. The average total cost of EPLI claims to settle defense and settlement payments was an eye-opening $125,000, according to the Hiscox 2015 Guide to Employee Lawsuits study. As mentioned above, 40% of claims are made against companies with 100 or fewer employees. Admittedly, for a variety of reasons in 2020, those average settlement costs are higher today
While not inclusive, these are some of the most common types of discrimination, with many articles regarding them published on the EEOC website:
Race & Color
When considering that in 2018 the EEOC processed 90,558 charges of employment discrimination, the obvious inference is the agency aggressively investigates allegations of discrimination against employees. EEOC’s demonstrable responsive and active participation in advocating for employees means employers must take issues of discrimination seriously.
There are also situations where EPLI applies in nondiscrimination cases, including the following examples:
Wrongful Termination – it covers any firing that violates federal, state, or local laws, the terms of an employment contract, or for reasons that go against public policy. Charges may be for discrimination, harassment, retaliation, breach of contract, breach of good faith, breach of fair dealing, and more.
Failure to Promote – an example is a manager who stalls or avoids promotions of worthy candidates to keep positions in their department filled.
Wage & Hour – because such claims have been the subject of numerous multimillion-dollar class-action suits, they represent a valid reason for serious management concern.
According to industry experts, retaliation and sexual harassment claims, gig worker classification, the gender pay gap, and medical marijuana usage are among the top trending employment practices litigation cases in 2020. Moreover, the average cost of employment-related claims is rising, along with the length of time it takes to resolve a complaint.
The article identifies these top five trends for EPLI:
Retaliation Claims on the Rise
#MeToo Movement Results in Spike of Sexual Harassment Claims
Gig Economy Leads to Increased Wage and Hour Litigation Threat
The Gender Pay Gap Remains
Marijuana Legalization Impacts the Workplace
Employment law is set up to govern the employer-employee relationship. It includes a broad range of topics and concerns, many of which relate to the need for EPLI protection directly. Any business with even one employee is likely affected by employment law. The common goal of employment law is to mandate workers' rights and offer them protection through both state and federal laws. The laws intend to:
Prevent workplace discrimination
Require minimum levels of economic support
Promote health and safety initiatives
Minimize labor and management disputes that cause work disruption
One of the most well-known employment laws is Title VII. It is a federal statute that came into law under the Civil Rights Act of 1964. It prohibits employment discrimination based on a person's race, color, religion, sex, or national origin. The law makes it illegal for employers to consider a person's race, color, religion, sex, or national origin when hiring, firing, promoting, compensating, and in other applicable facets of employment.
The Fair Labor Standards Act or FLSA, is another high-profile and well-known employment law. It was enacted in 1938 to protect workers during the Great Depression. Workers in those times were often exposed to long hours, severe conditions, and unfair pay. The establishment of a federal minimum hourly wage and child labor laws for specific industries are hallmarks of the FLSA.
Employment Practices Liability Insurance Costs
According to the Advisen website, in the period of spring 2016 through spring 2018, $1 million in coverage was the median EPLI limit for employers with less than $25 million in revenue. It also puts the median annual premium at $4,900 per year, with median retention of $10,000. For businesses with more than $5 billion in revenue, Advisen found these medians:
$30 million limit
$1 million retention
Best Employment Practices Insurance Programs
When researching for the best EPLI insurance programs, start with the Program Business market directory. You will find Litchfield Special Risks (LSR) as one of the top Employment Practices Liability programs listed. Its underwriters understand the details and unique nuances of the EPLI marketplace. LSR's available coverages include employment practices up to $5,000,000, and Fair Labor Standards Act (FLSA) included at $100,000 in most jurisdictions with retention rates starting at $1,000. Its programs will cover up to 500 employees if there are no more than two employment practices claims in the past five years.