Employment Practices Liability Insurance, or EPLI, is business insurance an employer can purchase that will provide protection from losses caused by certain employment disputes with current or former employees. EPLI is in addition to commercial general liability or umbrella policies that normally contain exclusions for most employment claims.
EPLI normally covers the employer, its employees and executives for losses (including defense costs) attributed to claims for discrimination, harassment and retaliation; wrongful discharge; defamation (i.e., libel and slander); invasion of privacy and false imprisonment. It normally does not include coverage for wage and hour claims (FLSA); claims for breach of contact or claims by independent contractors; claims arising under WARN, NLRA, OSHA, ERISA, COBRA and some ADA claims. It will also not include coverage for attorney’s fees associated with claims brought by the employer against the former employee such as counter claims (e.g., breach of contract, theft of trade secrets). Depending on the state where the claim is made, punitive damages may also be excluded or uninsurable.
Defense costs, including attorney’s fees, are often the largest expense an employer faces in defending an employment claim brought by a former employee. Even a frivolous claim or a claim the employer eventually wins is expensive to defend. These fees and costs are usually covered by EPLI but have the effect of decreasing the amount of coverage available to pay a judgment or settlement. Another potential limitation of EPLI coverage is that the insurance company normally gets to select the defense counsel that will defend the employer for covered claims. If selection of or use of particular lawyer is important (i.e., your normal labor and employment counsel), the employer should have included in its policy a provision that gives it the right to select defense counsel.
EPLI policies are normally claims made policies. A "claims made" policy means that it will only protect against losses that occurred during the policy period and that are reported within a short period following the end of the policy period. Because an employer may learn of a potential claim until months after the employee leaves employment (and potentially after the expiration of the policy period), the employer may want to consider purchasing additional coverage that will extend the protection the employer has for up to a year after the end of the policy period (aka tail coverage). Failure to timely make a claim and put the insurance carrier on notice of the potential claim can be grounds for the carrier to deny the claim.
EPLI can also be expensive. Rates depend on a variety of factors including the location(s) where the employer has employees; the number of employees; the employer turnover rate; and prior history of employment litigation among others. However, EPLI can be an important part of many business’ overall risk avoidance or minimization strategy. If you have questions about whether EPLI is right for your business, contact your insurance broker or your labor and employment attorney.
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