Employment practices liability insurance, commonly known as EPL insurance or EPLI, provides coverage to employers against claims made by employees alleging discrimination (based on sex, race, age or disability, for example), wrongful termination, harassment and other employment-related issues, such as failure to promote.
The cost of insuring your business for EPLI coverage depends on a variety of factors, such as the number of people you employ, if you’ve had prior suits lodged against the company, the percentage of employee turnover, and if you have established rules and practices in place. Depending on the size of the company, EPLI can be offered as an endorsement to a Business Owner’s Policy (BOP), a General Liability Policy (GL), or a specific standalone policy can be written in conjunction with a BOP policy.
EPLI coverage is usually written on a claims-made basis. This means the incident resulting in the claim had to occur during the coverage period. Because employment claims often come months or even years after the alleged incident, an employer might be vulnerable if the insurance coverage was dropped or if tail coverage (liability insurance that extends beyond the end of the policy period) wasn’t purchased.
EPLI provides protection against many kinds of employee lawsuits, including claims of:
- Sexual harassment
- Wrongful termination
- Breach of employment contract
- Negligent evaluation
- Failure to employ or promote
- Wrongful discipline
- Deprivation of career opportunity
- Wrongful infliction of emotional distress
- Mismanagement of employee benefit plans
Third-party employment practices liability coverage. A separate insuring agreement contained within employment practices liability insurance (EPLI) policies that covers liability claims brought by nonemployees (typically, customers, clients, and vendors) against employees of the insured organization. Third-party employment practices liability coverage is needed because coverage for claims by nonemployees is not provided under commercial general liability (CGL) policies. This is because CGL policies exclude coverage for harassment and discrimination—the two causes of action most likely to be alleged in claims by third parties. Third-party employment practices liability coverage is most often provided under Insuring Agreement B within EPLI policy forms and is subject to a limit that is separate from the limit applicable to Insuring Agreement A (which covers “traditional” employment practices liability claims brought by employees against the insured company and/or other employees). On the other hand, a substantial minority of insurers offers third-party employment practices liability coverage by means of a separate endorsement, whose limit is included within Insuring Agreement A of the policy.
A firm’s exposure to third-party liability claims is driven largely by the extent to which its operations involve contact with the public. For example, an airline, which engages in frequent, intensive customer contact, has a much greater exposure to third-party claims compared to a firm that manufactures aircraft engines for sale to a handful of large industrial customers. Such differences are reflected in the rates insurers charge for third-party employment practices liability coverage.
Breach of an employment contract. A type of claim in which an employee alleges that an employer has breached the terms of an agreement governing the terms of employment, of which there are two basic types: (1) a written employment contract and (2) an implied contract of employment.
Virtually no employment practices liability insurance (EPLI) policies cover indemnity payments (i.e., settlements and judgments) involving breach of a written employment contract, and only a handful cover the defense costs pertaining to such claims.
EPLI policies do, however, cover both the defense and indemnity costs generated by claims alleging breach of an implied contract of employment. Such claims typically state that an implied contract of employment was established by a letter offering employment, language appearing in an employee handbook, or statements made by a manager/supervisor or as a result of an employee’s tenure with a company.
Wage and hour insurance coverage endorsement. A coverage endorsement that may be attached to employment practices liability insurance (EPLI) policy forms. It covers the cost of defending claims alleging that an employer failed to pay overtime to a nonexempt employee—that is, an employee who is not exempt from, and therefore eligible to receive, overtime pay under the Fair Labor Standards Act (FLSA). No coverage typically applies under these endorsements to settlements or judgments (i.e., they cover only defense costs), and a sublimit (e.g., $100,000 to $500,000) usually applies