Thursday, May 28, 2009

"Do I need Employment Practices Liability Insurance for my business?"

The current economic downturn and its resulting job losses have spurred the fears of employers. As jobless numbers increase so does litigation against employers by disgruntled former employees seeking redress for issues, both justified and unjustified, relating to their terminations. Therefore it does beg the question by most employers “Do I need Employment Practices Liability Insurance?”

First, as always, a little education; Employment Practice Liability Insurance (EPLI) is available to employers to help defend and respond to claims by employees for acts related to their employment. Typical (but not all) types of claims an employer would see coverage respond to would be:
  • Wrongful dismissal, discharge or termination of employment
  • Violation of employment discrimination laws (including harassment)
  • Breach of a written or oral employment contract or implied employment contract
  • Sexual or workplace harassment of any kind
  • Wrongful demotion
  • Negligent employee evaluation
  • Wrongful deprivation of a career opportunity

Other key aspects of an EPLI policy are:

  • Defense cost coverage for claims seeking non-monetary relief
  • Third Party Liability
  • Independent Contractor coverage
  • Claims involving arbitration, regulatory and administrative proceedings, EEOC & Department of Labor investigations

At this point some may ask whether or not their current liability insurance provides coverage for these exposures. The answer is an emphatic NO! Most Commercial General Liability polices and Workers Compensation policies have very specific wording excluding coverage for these types of claims in their policy language. For the most part the case law has upheld these exclusions with few exceptions.

Before we would look for EPLI coverage, I encourage clients to undergo some honest self evaluation regarding their own organization’s culture as it relates to employees. A thorough examination of their Human Resources (HR) procedures is not only necessary from an insurance underwriting position; it is also a good risk management process to undergo on a regular basis. Consistent evaluation can help identify potential problems before they develop and allow for corrections to be made. As a starting point I would ask “Do you have an Employee Handbook?” Whether you have 1 or 1000 employees, a handbook is probably the single most important tool an employer should have in their HR toolbox. A handbook represents the best avenue for communicating policies to and setting the HR tenor of the organization for employees. The development and update of an Employee Handbook will help to get an organization on the right path to EPLI loss control and is also required by most insurance companies as a condition of coverage. Again, the handbook is just a good jumping off point, a full assessment of all HR functions and activities should be done. There are many HR assistance organizations that can be utilized to aid any sized organization in this process.

Once the self evaluation is completed you can discuss the availability and make up of EPLI coverage for your organization. Be prepared, for depending on the make up of your organization (i.e. structure, size, industry, etc), the cost of EPLI coverage can run the gambit of relatively inexpensive to pricey. For example most Not-for-Profit organizations can have EPLI added on to their Directors and Officers Liability coverage for little or no additional premium. However for most For-Profit businesses it is a stand alone policy which can be expensive. As with most insurance, you get what you pay for, and, thus you can affect the pricing with the coverage options you choose. Also, there is no standardization of coverage forms as with most other insurance policies, so it is important to examine specimen coverage forms carefully to denote differences in coverage.

So to answer this week’s question, I say from a Risk Management standpoint, in good economic times or bad, having solid and consistent HR procedures will help mitigate your chances of a claim. However, it is not a total barrier and it would be nice to know you have the EPLI coverage to pull out of your tool box if needed. Think of the HR procedures as your belt and the EPLI coverage as your suspenders; it will be very unlikely you’ll get caught with your proverbial pants down!

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