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Understanding EPLI: Employment Practices Liability Insurance

GRAND FORKS, N.D. – Let’s put this in terms Prairie Business readers will understand:

Flood insurance.

Every year, Americans who get flooded discover something that residents of Fargo, Grand Forks and other flood-prone cities learned long ago: Homeowners must never assume they’ve got flood insurance.

That kind of coverage is always a separate buy. So, “don’t think you’ve got flood unless you know you’ve got flood,” as Richard Penning, Bell Insurance vice president and agent in Fargo, put it.

And just as it is with flood insurance, so, too, is it with employment practices liability insurance or EPLI.

EPLI is insurance to protect businesses from risks associated with employee lawsuits, said D.J. Campbell, administrative services manager with EMC Insurance Companies in Bismarck, N.D.

“Those can range from sexual harassment, wrongful termination, discrimination, retaliation – a lot of those things that we’re hearing more and more about.

“EPLI is there to take those exposures and transfer them over to an insurance company, so the business owner can have peace of mind,” Campbell said.

And here’s the flood-insurance parallel: General liability policies do not cover those claims.

The insurance industry created EPLI as a separate product years ago, said Chad Lindgren, Vaaler Insurance producer in Grand Forks.

“Business owners sometimes think, ‘Well, I have a million-dollar liability policy’,” Lindgren said. “‘Everything’s covered, right?’”

Wrong: “General liability generally covers ‘slips and falls,’ not employment or malpractice or workmen’s comp,” Lindgren said.

“In the business world, there are different lines of coverage for different perils that you have to think about. EPLI is one of those.”

And these days, EPLI often is mentioned in the same breath as cyberinsurance, because both products cover what seem to be sharply increasing risks.

American companies in 2016 faced a 10.5 percent chance of having an employment charge filed against them, reports the Hiscox Guide to Employee Lawsuits. That’s quite a bit higher than the companies' risk of a fire.

Changing times help explain why, according to “Harassment complaints filed with the U.S. Equal Employment Opportunity Commission are on the rise, perhaps sparked by the wave of #MeToo revelations,” the website reported in February.

“The EEOC received 7,609 sexual harassment charges in its 2018 fiscal year, up nearly 14 percent from 2017.”

Despite that growth, comparatively few companies buy EPLI policies, says, the website of the Society for Human Resource Management.  

“Only about 4 percent of U.S. firms had it in 2016,” reported in August.

“Still, that covered 33 percent of all U.S. employees, since larger employers with more workers are more likely to buy it.

“Nearly 56 percent of organizations with 5,000 or more employees carry it, compared with less than 2 percent of businesses with 1 to 4 workers.”

Calculating costs and benefits

As with cybersecurity risks, small businesses should think carefully lest they underestimate their exposure.

You don’t have to look far to see news of people filing wrongful-termination and similar claims, said Lindgren of Vaaler Insurance.

“Just in our agency alone, we have handled dozens of EPLI claims over the years,” he said.

“So it does happen, even in our ‘North Dakota nice’ area.”

One prospective EPLI customer is a construction firm, Lindgren said. “Their workforce is mainly hard-working guys, but the owner said, ‘You know, this has been a concern of mine for a couple of years,’ so we’re giving him a quote.

“He doesn’t think he’s doing anything wrong, but he’s worried about a claim and about lawyers’ costs.”

Two quick points about those concerns:

First, the biggest key to minimizing risk (and decreasing EPLI premiums) is to make sure, as best as possible, that you’re not doing anything wrong.

That means hiring HR people who know the law and will set up strong employment policies, or – for smaller firms – perhaps retaining HR consultants who can do the same thing.

“Loss prevention is really your best protection,” said Penning of Bell Insurance.

“Understand the laws, train your employees, take all complaints seriously, have a well-thought-out Employee Handbook and things like that.” The stronger your employment practices and policies, the lower your premium is likely to be, Penning said.

Second, know that a key benefit of EPLI insurance is that it typically covers defense costs.

“You’ll have a level of coverage not only for damages, but also for defense,” said Campbell of EMC Insurance.

“That’s important, because the defense costs often are significantly higher than the damages.”, a digital resource for small businesses, offers the following tips for companies considering EPLI.

For small businesses, “the cost of EPLI insurance typically ranges in premium between $800 and $3,000 annually, with $1,200 being the average annual cost of EPLI,” the website reports.

For large businesses, the premium cost can run into five or even six figures.

“Deductibles can be as high as $25,000 to $50,000 for small businesses,” according to the website.

And as with buying auto, homeowners or any other type of insurance, the challenge is to balance coverage limits and deductibles to get a good policy at the right price.

“I work not only in insurance but also in HR, and EPLI is a hot topic on both sides,” Campbell said.

That’s because both fields sense the claim numbers are on the rise. “This means it’s even more important for businesses to not only reduce their risks, but also have the coverage so that if something does happen, the business can continue on.”

Tom Dennis

Editor, Prairie Business