Your Employment Practices Liability Insurance Primer

Running a business is risky, no doubt, but the risks are not only in market conditions. 

As a business owner, you should also be aware of the internal risks that your company faces before they escalate. In 2018, the EEOC charged government and private companies about $505 million  for discrimination. In fact, private enterprises with 100 or fewer employees are responsible for about 40% of EPLI (Employee Practices Liability Insurance) claims. As 42% of organizations do not think of buying EPLI, think of the risk of falling prey to such claims. That could add up to a chunk of money for out-of-court settlements and victim’s security and compensation.  

There is no way to know if all claims are valid without fighting it out in court. And that takes a lot of money in the form of legal fees, apart from the wasted time. If you do not have EPLI, such expenses can be back-breaking. 

So, what is this EPLI, and how can it protect your business?

A protective shield against mammoth legal expenses 

Both large enterprises and small companies are susceptible to legal issues arising from employee harassment, discrimination, unlawful termination, mismanagement, disciplinary conduct, emotional distress, and so on. The Employment Practices Liability Insurance (EPLI) covers the expenses of dealing with such lawsuits, no matter the result. While many insurance companies offer the same under the BOP (Business Owner’s Policy), you can also buy a standalone product customized to your needs and risk proneness. 

Myths about EPLI and the truth

Many employers believe that as they have a small business, they do not need EPLI to safeguard themselves. However, they are wrong. It is even more difficult for small and medium-sized organizations to find the finances for a full-fledged legal proceeding in case of discrimination and harassment claims.

Some misconceptions about the insurance product must be busted. Let’s do that:

Myth 1- It is easier to manage small companies without EPLI

Wrong! Large organizations generally have a proper structure and a dedicated HR management infrastructure that can nip harassment cases in the bud. They also have the resources to fight legal battles for a long time. However, small companies suffer on all counts. Many small business owners have to file for bankruptcy due to such lawsuits. 

Myth 2 – General coverage protects against lawsuits

Most general liability insurance or BOPs does not include discrimination lawsuits. They can cover for legal expenses related to worker’s compensation, product/services hazards, and other business issues. But for discrimination and harassment, you may have to buy separate EPLI coverage. 

Myth 3 – BOP add-ons are better than standalone EPLI coverage

In most cases, such add-ons are limited, and with narrower coverage that may not be enough for your business. On the other hand, a standalone policy will be customized and specific to your business – its size, needs, and potential risks. 

Myth 4 – EPLI is so expensive that small businesses cannot afford it

If you consider the expenses of running a discrimination case against your company in the court, you may not find EPLI so expensive and unaffordable. Even the simplest of defamation cases may run into millions of dollars, while the EPLI may only cost a few hundred in premium. So, isn’t it better to stay protected?

Myth 5 – Small businesses are like families. They don’t have discrimination issues

While you may try your best to render your workplace discrimination-free, fraudulent practices can also lead to costly lawsuits. What if someone wants to malign your reputation for personal gains? You may have to fight the case in the court to prove your innocence. The EPLI will help bear the costs of the same. 

Some effective ways to reduce the rate of EPLI insurance

The costs of EPLI largely depend on the size of your business, number of employees, and the industry it serves. Your employment history, whether cases of discrimination or harassment have been reported in the past, also affect the rates of insurance. You can consider the following suggestions to reduce the rate of insurance and chances of future legal expenses to a minimum. 

  • Pay the full premium at one time instead of going for installments
  • Take strict measures against discrimination in the workplace and document compliance
  • Give anti-harassment and anti-discrimination training to all your employees
  • Ask your HR to ensure compliant with the anti-harassment laws and regulations
  • Respond to harassment cases with immediate actions 
  • Extend support to harassed or discriminated employees 
  • Conduct proper screening before onboarding new people 
  • Check the background of each potential candidate you are planning to hire
  • Have the HR team create strict workplace policies against all kinds of physical and mental harassment

If you follow these suggestions carefully, you can ensure a safe and healthy work environment for your employees, thus reducing the chances of harassment and other similar claims. Of course, this doesn’t guarantee that no one will raise fraudulent claims but the cleaner your history, the lesser the premium you may have to pay to keep yourself protected.