Employment Practice Liability Insurance (EPLI): Workplace Factors

No employer plans to be sued any more than they plan to defend their employment practices to a jury of strangers. This is likely one of the reasons that, according to a recent article on HNI, only 25% of all businesses purchase employment practices liability insurance, or EPLI, actually get it.

Image of office workers around a conference table.

There are certainly as many reasons why businesses don't purchase EPLI as there are businesses. After more than two decades in the EPLI industry, the number one reason I heard from clients was: Business owners don't believe they'll ever be sued.

The statistics on employment practices litigation suggest otherwise. Over the last 20 years, employment suits or claims have risen an astonishing 400%. Just under half of those are brought against employers with 100 employees or less. In other words, private companies and small businesses are targets. In 2017, the Equal Employment Opportunity Commission (EEOC), the federal agency tasked with enforcing the anti-discrimination laws gathered under Title VII and its various offshoots, received over 540,000 calls to its hotline. They received 155,000 inquiries for how and whether to file discrimination charges. They investigated over 100,000 charges and recovered $450 million in damages. It's worth noting that when it litigates, or seeks settlement on its terms, the EEOC gets its way about 90% of the time.

That's only the EEOC. These numbers don't take into account any of the state agencies, which are also very active. The numbers don't account for plaintiffs' attorneys, who bring thousands of cases each year, and receive millions of dollars in fees and costs, as well as additional millions in settlement proceeds. The 2017 Hiscox Employment Survey of 1,200 representative employment cases against small to medium-size companies (500 employees or less) in 2016 found that on average, these cases remained active for almost a year (314 days) and where they received fees and settlement, the value averaged at or over $160,000.

Commercial General Liability Excludes Exposures that EPLI Covers

Perhaps you're already insured, with a Commercial General Liability policy that you believe responds to all of your business's risks. But don't be hasty: The CGL excludes employment exposures that EPLI covers, so if you have CGL, you're self-insured for the sorts of employment claims we're discussing.

If you are still trying to decide whether self-insuring your employment risks is the way to go, consider that filing a lawsuit, charge, or sending an email claiming employment violations, is easy to do, even without an attorney. Businesses are approximately 1,000 times more likely to experience an employment claim than a fire, according to the 2015 Hiscox Insurance Survey. Over 70% of employment trials at the state level result in plaintiff verdicts, and defense costs in those trials can easily exceed $200,000 even in single-plaintiff cases. Some employment theories carry fee-shifting, which means that the prevailing party in certain kinds of employment cases will have their attorneys' fees and costs paid by the defeated party. As a practical matter, this usually only happens if the plaintiff wins. Courts rarely, if ever, award the winning employer its fees against a single plaintiff. Verdicts in these employment cases can climb well into seven figures.

So what factors at your workplace are putting your business at risk? Consider these possibilities, which may be benign or signs that your circumstances may have consequences:

You've never been sued.

This may be a sign of a successful workplace environment, or it may be a matter of luck.

Your business has a high turnover rate.

This is a common experience for anyone who's worked for an organization that is acquired or undergoes a change in leadership or management direction. There's always a portion of the workforce that dislikes change. They may prefers the prior management team or style or may not want to move to a new platform for their day to day responsibilities. Such factors can lead to disenchantment and resentment. Issues or communications that weren't previously problematic may be seen in a different light, as are old exchanges over performance feedback, bonuses, titles, or other similar matters.

You have a small workforce and are intimately involved with your employees.

One claim can turn into a bet-the-company proposition in terms of expense and potential settlement or award value. Your company's net worth and profitability can take a dramatic, perhaps fatal hit.

You provide your employees healthcare.

This is, of course, a positive thing (and often legally mandated), but it also means you're handling sensitive, personal data. There's risk of employment claims for invasion of privacy, failure to accommodate disabilities, failure to comply with pertinent leave law, and other claims.

You have a diverse workforce.

This is a laudable and critical goal that all businesses should strive for. It can also be a source of risk in employment law. Too little diversity in the workplace poses problems; failure to hire, discrimination, and equal pay are just a few of the many theories that insufficient diversity in the workplace can initiate. But what about businesses that are very diverse? Despite the best efforts of management and human resources leaders, interpersonal friction borne of cultural, religious, racial, political, age, ability, and orientation-based differences often lead to employment issues.

EPLI isn't a Panacea.

These policies contain exclusions that can shift the financial responsibility for employment claims (sometimes significantly) to the employer. There are frequently negotiations with the carrier over issues like counsel choice and rates, allocation, and the issue of settlement versus litigation. But here's the thing: EPLI policies are assets employers can and should draw on when an employment risk arises to avoid serious business exposure. The right guidance from insurance experts can help maximize that asset to the fullest extent, and that's probably a lot better than going it alone. For advice on how to avoid friction in employment liability claims, read this article by Woodruff Sawyer's Scott Goettelman.


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