Employment Practices Liability: Is Your Business Covered?
As an employer, it’s something you hope will never happen – a claim of discrimination, harassment, wrongful termination or any other employment-related claim. But if it does, is your enterprise protected?
Many employers do not realize there’s often a gap in their insurance coverage that leaves them vulnerable to these types of lawsuits. Most commercial general liability (CGL) policies exclude coverage for claims relating to harassment, discrimination, wrongful termination, failure to hire or promote and other employment-related matters. Employment Practices Liability Insurance (EPLI) was created to fill this gap.
A Little Background
Created in the mid-90s, EPLI was originally part of Directors & Officers (D&O) insurance, but because of the complex nature of the claims it morphed into its own product. In 2017, EPLI was thrust into the spotlight with 70 sexual harassment claims leveled against film producer Harvey Weinstein, among others, and the advent of the #MeToo movement.
In the two years since the movement exploded, sexual harassment claims aimed at organizations of all sizes, from Fortune 500 to small firms, have burst onto the scene in unprecedented numbers. More people are sharing their stories – and making insurance claims. No enterprise is exempt from these allegations.
In the Equal Employment Opportunity Commission (EEOC) Enforcement and Litigation Data for 2017, the most frequently filed charge against employers was retaliation at 48.8%. Discrimination for race, sex, disability and age followed behind. In 2017, the typical claim was $460,000, and settlements averaged $160,000. The claims can take 318 days to resolve, often causing disruption and depleting resources.
Approximately 56% of companies with 5,000 or more employees carry EPLI; however, it is small or new businesses that are the most vulnerable. Over 40% of EPLI claims are against organizations with fewer than 100 employees. (Source: SHRM/ISO MarketStance)
What Does “Proper Coverage” Look Like?
Employment-related claims can be costly and damage the reputation of a business, so it’s critical for companies and organizations of all sizes to ensure they have proper EPLI coverage. Coverage also can be provided with optional endorsements, including:
Third-Party Liability – A separate agreement within EPLI policies that covers liability claims by non-employees. For example, customers, clients, vendors or other non-employees may allege that an employee engaged in a wrongful act such as harassment or discrimination, including age, sex, race, disability, etc. Businesses that deal directly with the public, such as restaurants, stores, contractors, hotels, schools, medical offices and airlines, among others, have much higher exposure to these types of claims.
Wage and Hour – An endorsement that may be attached to an EPLI policy that covers the cost of defending claims alleging that an employer failed to pay overtime to a nonexempt employee – an employee who is hourly and eligible to receive overtime pay under the Fair Labor Standards Act. Defense costs can be provided as a separate sub-limit of coverage.
For companies looking to mitigate risk, EPLI is the difference between successfully handling a lawsuit and the loss of a favorable reputation and livelihood. The numbers can be unmanageable for the average business. As such, it is critical that EPLI not be overlooked. It would be worthwhile to review your policy to ensure your business is protected.
Managing risk is a key factor in meeting compliance requirements, as well as safeguarding you and your customers’ assets. CBIZ risk consultants in our banking and financial services group have the knowledge and experience to provide comprehensive insurance and risk solutions designed to safeguard your institution. Don’t hesitate to reach out to Kris St. Martin, Director of CBIZ Financial Institution Services, at (763) 549-2267 or KStMartin@CBIZ.com for more information.