Hiring good people takes real effort. Treating them well takes even more. But careful, ethical employers still face lawsuits: a former employee who claims wrongful termination, a rejected applicant who claims unfair treatment, a vendor who accuses your team of discrimination. These claims cost money to defend, whether or not they hold up in court.
Employment Practices Liability Insurance, or EPLI, exists for this kind of exposure. But EPLI policies differ from carrier to carrier. Some limit claims from non‑employees. Some fold legal fees into your payout limit instead of paying them separately. Buying a policy that doesn’t fit your business creates its own risk.
We’re Horan, an independent insurance agency in Baldwinsville, New York, and we’ve been helping Central New York businesses with EPLI coverage since 2011. Because we work with multiple carriers instead of one, we can compare options side by side and help you find coverage that fits how your business operates.
In this article, we’ll cover what EPLI insurance can help with, the claims it typically responds to, and what carriers check before they’ll issue a policy. We’ll also cover a few situations business owners don’t always expect EPLI to touch.
What is EPLI Insurance and Why Do You Need it?
EPLI stands for Employment Practices Liability Insurance. It can help cover claims related to employment issues, such as:
- Sexual harassment
- Wrongful termination
- Discrimination
- Retaliation
- Wage and hour disputes
- And more
These are some of the most common and costly claims that employers face. Without EPLI coverage, you could end up paying thousands or even millions of dollars in legal fees and damages.
A case in point is a discrimination suit brought by a deaf woman who sued a distribution operation in Lysander over warehouse positions. The company refused to interview her. That resulted in a $1.6 million judgment.
Legal issues can arise from different situations, such as:
- The hiring process
- The performance review
- The termination process
- The workplace environment
- Interactions with customers or vendors
Two Types of Claims Covered by EPLI
EPLI insurance typically separates claims into two types: first party and third party. Let’s look at what each one means.
- first party and
- third party.
Let’s see what they mean.
First Party Claims
First party claims involve employees who work for the same company. For example, if Mindy sexually harasses Ryan, and they both work for ABC Logistics Inc., based in Herkimer, that’s a first party claim. Ryan can sue ABC Logistics Inc. for allowing the harassment to happen.
Third Party Claims
Third party claims involve people who don’t work for the same company. For example, if Zack, the delivery guy, sexually harasses Mindy, and Mindy works for ABC Logistics Inc., that’s a third party claim. Mindy can sue ABC Logistics Inc. for not doing enough to prevent the harassment. Zack can also sue ABC Logistics Inc. if Sandy sexually harasses him. So it goes both ways.
Third party claims are usually related to harassment issues. EPLI insurance can typically respond to both first party and third party claims, but some policies may have different limits or exclusions for third party claims. Speak with your insurance agent to fully understand your policy and make adjustments if necessary.
Employment Issues Such As Hiring, Promotions, and Proper Payment
EPLI insurance can also extend to other employment-related issues, such as:
- Failure to hire
- Failure to promote
- Failure to pay properly
For example, if you pay Stanley more than Jack for the same job, and you have no good reason for it, Jack can sue you for unfair employment practices. EPLI insurance can help pay for the legal fees and the potential judgment, up to a certain limit.
But there is a catch.
Are Legal Fees Included in the EPLI Policy Limit or Not?
Some EPLI policies include the legal fees in the limit, while others don’t. This can make a big difference in how much coverage you actually have. For example, if your limit is $1,000,000, and the legal fees are $800,000, you only have $200,000 left for the judgment. That may not be enough to cover the damages.
That’s why you should always choose a policy that has the legal fees outside the limit. This way, you will have the full limit available for the judgment, no matter how much the legal fees are. It may cost you more upfront, but it will save you a lot of trouble later.
EPLI insurance has different limits and terms depending on the carrier. Some carriers may offer more coverage than others, but they may also charge more. You should compare different options and choose the one that suits you, your situation, and your budget.
Also check the policy details carefully and make sure you understand what is covered and what is not.
Office Dating Between Employees and Other Employment Issues
EPLI insurance covers many situations that can happen in the workplace, even if you don’t see them or know about them. For example:
- Two employees date each other and then break up. One of them harasses the other in the break room.
- A former employee sues you for age discrimination after being fired and replaced with a younger worker.
- An employee sues you for sexual harassment because they claim one of your team leaders made unwanted advances toward them at a company party.
These are just a few examples of situations EPLI insurance can help address.
Qualifying for EPLI Coverage
But EPLI insurance is not easy to get. You have to apply for it and prove that you abide by certain practices. The carrier will need answers to questions like:
- Do you have a handbook that explains your policies and procedures?
- Do you have regular reviews to evaluate your employees’ performance and feedback?
- Do you have a system to handle complaints and resolve conflicts?
- Do you follow the best practices and the legal requirements for your industry and location?
The carrier wants to see that you’re not just buying EPLI insurance to avoid managing the risk. They want to see that you’re doing your best to prevent and reduce the risk.
Being proactive will help you prepare for the road toward obtaining EPLI coverage. That means having an anti-discrimination and harassment policy in place. Also, providing proper employee training and fostering open communication helps. Having a fair disciplinary process also puts you on the right footing.
Refusing to take these necessary measures can result in potential consequences, such as higher premiums or even denial of coverage.
But know that not all businesses, despite their willingness to implement these practices, will qualify for EPLI. That includes businesses that operate with high levels of risk. For instance, if one of the following applies:
- High-risk industries: Businesses in industries with inherently high risks, such as construction, transportation, or healthcare, may face difficulty getting traditional EPLI coverage due to the potential for costly claims.
- Poor claims history: A track record of past employment-related lawsuits or claims can significantly raise a business's risk profile and discourage insurers from offering coverage.
Remember, meeting these criteria isn’t just about securing insurance. It’s about creating a positive and ethical work environment. If you haven’t yet implemented these practices, consider it an investment in your business and your employees.
EPLI Can Help Uphold Your Company’s Reputation
EPLI insurance is not only about the money. It’s also about your reputation.
If you have a lawsuit related to employment issues, it can damage your image and your credibility. It can make people think that you’re a bad employer who doesn’t care about your employees. It can make people avoid working for you or doing business with you.
EPLI insurance can help you avoid or minimize the reputational harm that a lawsuit can cause. It can show that you’re a responsible employer who takes real steps to support your business and your employees. It can show that you’re willing to admit your mistakes and fix them.
EPLI insurance can also help you attract and retain good employees. It can show that you value your employees and respect their rights. It may also demonstrate that you provide a safe and comfortable workplace environment. It can help create a fair and ethical work culture.
What EPLI Means for Your CNY Business Going Forward
Running a business means juggling finances, operations, and customers all at once. Your employees complicate that list further — and matter more than any of it. They build your reputation one interaction at a time, for better or worse.
EPLI insurance doesn’t replace good management. Fair hiring, clear policies, and quick, honest handling of complaints do more to keep your business out of court than any policy ever will. But even well-run companies get sued, and an EPLI policy can stand between a single claim and a serious financial setback.
Central New York businesses face steep costs from lawsuits, whatever their size. Skip this coverage, and one dispute could set your business back years. Carry it, and you give yourself room to handle a claim without scrambling for cash.
As an independent agency, we work with multiple carriers and can help you compare EPLI options built for your situation.
Click the Get a Quote button below and let’s find a policy that fits your business.
And explore how these other commercial policies can support your CNY business:
