By David D. Schein, President & General Counsel,
Claremont Management Group
EPLI is Employment Practices Liability Insurance. This product was first introduced about 20 years ago and has increased in popularity since then. Small business owners and operators often miss this type of insurance when assembling their insurance package. More recently, business insurance agents have been prompting their clients to say “yeah or nay” to this insurance. With the growing cost of insurance in general, the key question about EPLI is whether to spend the extra money or not?
Most business owners carry general liability insurance, “GL,” on their business and Workers’ Compensation, “WC,” on their employees. These owners may presume that most claims will be covered by one type of insurance or the other. The problem is in the details. Virtually all GL policies exclude any claims of any kind made by employees. This creates an obvious gap in coverage.
WC only covers employee injury and work-related illness claims. A costly lawsuit is a WC retaliation claim. This is a situation where an employee is out due to a work related injury and is terminated, or returns from a WC claim and then is terminated in the first few months back at work. Absent just cause for the termination, it is quite possible the employee will prevail in a retaliation lawsuit. An award in this type of case could be in the hundreds of thousands of dollars, depending on the jurisdiction, in addition to attorneys fees and court costs. The retaliation claim is not covered by either GL or WC insurance.
Coverage through EPLI for a WC retaliation claim may make EPLI sound like a great deal. Not so fast! First, insurance costs money. A business must decide if the risk-reward analysis works for this insurance product. EPLI often has a significant deductible per claim or per policy year, in addition to the premium itself. If the business has had very few claims and each cost just a few hundred dollars, there may not be an economic justification to purchase EPLI. Second, the business must determine if the EPLI product will actually cover the most likely risks for that business. For instance, our firm recently reviewed a proposed EPLI policy for a client. In the section of “Exclusions,” many common types of employment claims were excluded. This significantly reduced the value of the policy to the client and the client decided not to purchase that policy. Further research might reveal an insurer that would provide comprehensive coverage.
Another obvious part of the business owner’s analysis is whether there are enough potential employment claims to make EPLI an economical choice. Businesses with less than 15 employees are generally not subject to EEO complaints. As such, these small businesses have less exposure to EEO claims, which are some of the most common claims for American businesses.