EPLI: Your Best Defense Against Work-Related Lawsuits

With so many cases of sexual harassment and discrimination in the news, it's not surprising that more companies have purchased employment practices liability insurance (EPLI). EPLI protects employers from damages resulting from workplace-liability claims.

EPLI was first introduced in 1988

and for several years there was little interest in the new insurance. The Civil Rights Act amendments of 1991, however, has led to a huge increase in discrimination claims and thus also an explosion of interest in EPLI.

In the past few years, employers have become increasingly aware that they are legally responsible for their employees' actions. Between 1990 and 1998, for example, the number of employment discrimination claims filed in federal court nearly tripled from 8,413 to 23,735. This, combined with the growing number of employment-related liability lawsuits, has driven the increased demand for EPLI, which is now offered by dozens of different insurers.

What EPLI Covers
EPLI covers defense costs, judgments and settlements (up to the policy limits) for the corporate entity, former and current employees, directors, and officers. It covers a variety of workplace-related legal actions, including:

• Discrimination
• Sexual harassment
• Wrongful termination
• Breach of employment contract
• Negligent evaluation
• Failure to employ or promote
• Wrongful discipline
• Deprivation of career opportunity
• Wrongful infliction of emotional distress
• Mismanagement of employee-benefits plans

EPLI policies do not cover workers' compensation, bodily injury or property-damage cases, nor do they cover cases that another insurance policy specifically covers.

EPLI Premiums
EPLI rates vary from state to state and from company to company. Generally an insurer calculates premiums by determining the amount of coverage a business needs and its perceived risk. An insurer will base rates on several risk factors, including the number of employees at a company, the turnover ratio, whether or not the business has a human resources department, and any past harassment or bias suits against the company. Businesses with 10 to 20 employees that have good HR practices and a clean record can expect to pay approximately $1,500 a year for EPLI coverage.

Employers can lower their company's liability exposure and keep insurance rates down by taking certain precautions:

• Don't hire workers with histories of drug or alcohol abuse.
• Institute zero-tolerance policies toward workplace harassment, discrimination, and alcohol and drug abuse.
• Develop an employee-standards handbook that defines the skills and performance you expect for each position.
• Measure your employees' performance on a regular basis.
• Discuss workplace liability with your insurer to see if your company should consider an EPLI policy.

Businesses that purchase EPLI coverage may actually reduce the likelihood of workplace harassment and discrimination. Insurers generally review a company to check for workplace liability before they issue a policy. And since insurers hate risk, they’ll usually recommend changes that reduce a business's exposure to lawsuits. Many of the steps you can take to ward off harassment claims and meet the demands of insurers begin with basic education and setting up the right environment.

Our Manager's Guide to Receiving Harassment Allegations cautions against the things managers must not do when handling such matters.