By David D. Schein, President & General Counsel,
Claremont Management Group
www.claremontmanagementgroup.com
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.
