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Employment Practices Liability Insurance (EPLI)

What is Employment Practices Liability Insurance?

Two females having a conversation at a table.Employment Practices Liability (EPL) insurance protects an employer from employees’ claims alleging discrimination, wrongful termination or harassment, including sexual harassment, as well as other wrongful employment acts. EPL insurance pays for liability damages and defense costs (within the limit) due to these charges brought by full-time, part-time, temporary and seasonal employees including certain independent contractors and leased employees, applicants for employment and recognized volunteers.

Why do small businesses need EPL coverage?

Small businesses are vulnerable to EPL charges being brought against them. Often state, country and/or city employment discrimination statutes have more restrictive compliance where even the smallest of businesses must comply even all businesses regardless of number of employees. Even groundless employment charges usually require legal defense and defense costs can be significant. Insureds need EPL coverage to have those defense costs covered (within the limit) and to access attorneys experienced in defending employers from employment-related charges. Small businesses often don’t have human resource professionals to develop the formal personnel policies and procedures that can help prevent employment-related charges. And they don’t have deep pockets so just the cost to defend them from EPL claims or charges can hurt a small business.

Why would a reputable, well-run business need EPL insurance?

No matter how well a business is run, an employee can allege anything at anytime. Employers need to defend themselves from employment-related charges, even if the charges are without merit. EPL coverage pays for defense costs (within the limit) even when the charges are groundless. Defense costs can be significant, well beyond what many small businesses can afford to pay.

What’s changed that now makes EPL insurance important for small businesses?

Today’s business and legal climate is different today than it was years ago. Employees are more aware of employment laws, their rights and how to exercise their rights by taking action against employers. In addition, federal and state employment related laws and regulations have been broadened. Employees see a lot of news coverage and publicity about employment cases and awards against employers. The workforce is more diverse with women, older workers and minorities representing a significant percentage of employees. And recent trends like the use of social media, the “black box” band on applications, the blending of personal and business usage on smart devices, and job-sharing are increasing “wrongful employment acts” exposures for businesses today.

What does an EPL claim typically cost an employer?

81 percent of EPL claims are resolved for between $27,000 and $50,000, according to HSB. This includes defense costs and liability damage payments. This isn’t an exposure that a small business should self-insure. Given the risk, our EPL program is a tremendous value.

What EPL coverage does ERIE offer?

ERIE offers EPL on both the Ultraflex and one for Ultrapack Plus. EPL is available in all states in which we do business (different endorsement forms apply). Both endorsements provide EPL coverage that is claims-made (except in NY which is just “Claims-made”). Defense costs are included within the limit. The Insured is responsible for the deductible and expenses in investigating, defending and settling claims and suits are included in this deductible. The deductible is not included within the EPL Aggregate Limit of Liability.

What is claims-made coverage?

EPL coverage is written on claims-made and reported basis, meaning that a claim must be made against the insured and reported (NY is just “claims-made”) to the ERIE within the policy period or any Extended Reporting Period (if applicable). Full prior acts coverage provides coverage for unknown acts that occurred prior to the inception of coverage with ERIE, even back to the inception date of the business.

What laws and statutes create the necessity for EPL?

The need for Employment Practices Liability insurance arises from a number of federal and state laws under which employees may bring actions against their employers for such matters as sexual harassment, discrimination and wrongful termination. Federal statutes include:

  • Title VII – A federal law enacted in 1964 and amended by the Civil Rights Act of 1991. Title VII prohibits discrimination or harassment on the basis of race, color, religion, gender, pregnancy or related conditions (amendment), or national origin. Title VII also created the Equal Employment Opportunity Commission (EEOC) as a venue for employment related grievances.
  • The Equal Pay Act of 1963 – Prohibits unequal pay for men and women serving in substantially the same position. Applies to all businesses regardless of size.
  • The Age Discrimination in Employment Act of 1967 – Prohibits discrimination against persons who are 40 years of age or older.
  • The Americans with Disabilities Act of 1990 – Prohibits discrimination against people with physical or mental disabilities. Employers also must make any “reasonable accommodations” for their disabled employees to conduct their duties as long as such an accommodation does not pose an undue hardship on the employer.
  • The Family and Medical Leave Act of 1993 – provides that an employee can take up to 12 weeks of unpaid leave to care for a new child or a seriously ill family member, including themselves.
  • Uniformed Services Employment and Reemployment Rights Act (USERRA) of 1994 – prohibits employers from discriminating against employees or applicants for employment on the basis of their military status or military obligations. It also protects the reemployment rights of individuals who leave their civilian jobs (whether voluntarily or involuntarily) to serve in the uniformed services, including the U.S. Reserve forces and state, District of Columbia, and territory (e.g., Guam) National Guards. Virtually all employers must comply regardless of number of employees.
  • Genetic Information Nondiscrimination Act of 2008/ Title II – prohibits discrimination because of genetic information.
  • The Lilly Ledbetter Fair Pay Act of 2009 (amends Civil Rights Act) – states that each paycheck that delivers discriminatory compensation is a wrongful action under federal EEOC statutes, regardless of when the discrimination began. The Lilly Ledbetter Act has a retroactive effective date of May 28, 2007, and applies to all claims of discriminatory compensation pending on or after that date.
  • Fair Employment Practices statutes – Individual state statutes that expand many of the protections provided under federal laws. These laws increase the protected classes to include such classifications as sexual orientation, transgender, medical conditions, obesity and others. These laws also extend their reach so that they apply to even the smallest employers and also lengthen the statutes of limitations. Additionally, the states have created Fair Employment Practices Agencies (or FEPAs) as the state equivalents to the EEOC.
  • Common Law – Employees can also allege such tortious acts as violation of their civil rights, infliction of emotional distress, invasion of privacy and others under common law.

What are the most reported types of EPL claims?

In 2015 the EEOC reported that retaliation (including all statutes) was the leading employment allegation at 44.5% of all claims. Based on defined “protected classes”, the top charges were for Race Discrimination (34.7%), Disability (30.2%), and Gender (sex) discrimination (29.5%). Understand that often multiple charges are brought; thus the statistics exceed 100%. Retaliation is often combined with other charges being brought for instance.