What is employment practice liability insurance?

Employment practice liability insurance (EPLI) is specialized insurance designed to protect against loss incurred in litigating and settling wrongful employment practices liability claims. It is typically structured as gap insurance for the company. It provides protection against lawsuits such as discrimination, breach of contract, and wrongful discharge suits, which usually are not covered by general business liability insurance. Directors’ and officers’ liability insurance only protects the individual and not the company itself. EPLI is most commonly designed to fill this gap in coverage. It generally provides reimbursement for the costs incurred in defending a lawsuit but does not cover reimbursement for any penalties suffered.

Costs for EPLI are dependent upon the size of the organization, the type of business and other risk factors.

EPLI is becoming more common as employment lawsuits become a part of doing business in this litigious age. Most employers are not prepared to absorb the risk of loss from such employment practices claims.

When evaluating and selecting insurance policies, companies should review the scope of coverage and adequacy of limits. They should understand who controls the claims handling process—the insured or the insurer. Selection of an appropriate policy for your company’s needs can be difficult and should be carefully considered.

EPLI is not meant to replace sound and secure employment practices. In fact, most insurance companies will not insure a company unless it has some basic employment practices in place. Employee handbooks, post-incident investigation practices, and arbitration or mediation policies are some of the major items that insurance companies expect an employer to have when applying for an EPLI policy. You should be prepared for the insurance company to scrutinize all of the HR functions. Also, recent employment lawsuits, size of company, geographic location, and type of business or industry all affect the availability and cost of insurance.