Are You Protected From Employee Claims?

Employment practices liability insurance (EPLI) helps protect small business owners from claims that arise from employees in relation to how the owners conduct their business.

For example, employees might file a claim for discrimination, wrongful termination, sexual harassment or wrongful discharge. With the average settlement for this type of claim now approaching $180,000 to $250,000, it is easy to understand why more small business owners than ever are taking steps to protect themselves from this growing threat.

Following is some information to help small business owners choose EPLI:

Determine Coverage: EPLI can provide coverage for employees, independent contractors and even leased employees as well as third-party providers such as salespersons. Coverage for off-site, remote and independent contractors is especially important, given the lack of direct supervision associated with performance.

Determine Deductible and Other Limitations: EPLI can be purchased in amounts ranging from $1 million to $25 million with corresponding deductible levels. Many policies will also include specific exclusions that limit or omit coverage during events such as a merger or major downsizing. Criminal conduct or other deliberate actions are also excluded.

Determine Your Small Business Risk: Every small business should have a written code of conduct as well as other pertinent personnel policies in place. My offfice may ask to review these before making a final determination on the cost of the policy, so be sure to keep them up to date and reflective of the day-to-day operations and expected conduct of employees. Nonprofit organizations are also at risk.

Determine Effective Dates: Policies are written on a “claims made” basis, and a policy must be in effect before a claim will be considered. Retroactive claims are available only as a special policy addendum and are most frequently used in combination with an acquisition or other unique event.

Annual Review: EPLI may be part of a comprehensive directors and officers policy or a stand-alone policy. It is important to do an annual review. Be sure your insurance changes with the company, including new situations, growth or downsizing, or other unique needs and demands. Call my office to coordinate each form of insurance so they complement rather than compete with one another.

Prevention is Still the Best Policy: The very best plan of action is to try to prevent this type of litigation from occurring in the first place. In a perfect world that may be possible, but today even the most diligent business owners face financial ruin from an unfounded lawsuit. According to the Society for Human Resource Management, 57% of respondents to a survey indicated their organization had faced an employment-related lawsuit in the prior five-year period. Even if a business owner wins, though, the owner may still be on the losing side simply due to the cost of defending the company. In fact, it’s not uncommon for employers to settle out of court in an attempt to cap out-of-control costs. By working with a knowledgeable agent, it is possible to develop a plan of action and human resource guide that reduce the bad behavior and unanticipated outcomes that could result in an employee-related lawsuit.