Considering purchasing EPLI (Employment Practices Liability Insurance)?
Let’s review the history and pros and cons of the current EPLI landscape to determine if EPL insurance is right for your business.
History of EPLI
EPLI was originally developed in 1990, following the rise in employment-related lawsuits that emerged after the passage of the Americans with Disabilities Act of 1990 and the Civil Rights Act of 1991.
In 2017, the purchase of EPLI dramatically increased, due to the MeToo movement and a surge in high-profile sexual harassment lawsuits.
EPLI Since March 2020
According to Travelers Insurance, increased layoffs following government orders to shut down businesses in March 2020 resulted in increased EPLI claims.
And, because of social inflation resulting in increased jury awards, the median EPLI award in 2020 reached $173,960.
Now, in 2021, the COVID-19 pandemic has created challenges for the EPLI market. On the heels of the global pandemic, a correction is taking place in the broader insurance marketplace, with EPLI proving to be one of the more affected lines of insurance.
Due to these circumstances, insurance companies have seriously restricted the EPLI insurance available on their package policies. For example, for most classes, GUARD now provides a maximum limit of $10,000 for EPLI limits on their Business Owner’s Policy (BOP) or commercial package. We have witnessed similar restrictions from Hartford, Liberty Mutual, and Travelers.
When it comes to GUARD, for example, we had success in the past, providing businesses of all types with $500,000 EPLI limits and a $500 deductible. Of course, like all EPLI, exclusions applied; but the limits and deductibles were excellent.
Now, at $10,000 limits, we need to look elsewhere. And for most businesses, that means the excess and surplus lines marketplace.
The Excess and Surplus Line Marketplace
The excess and surplus (E&S) lines marketplace, or the ‘non-admitted’ market, as referred to by many, can provide essential coverage when it is unavailable in the standard market.
When considering E&S, you must be aware of the policy forms and coverage provided. Unlike admitted programs, E&S carriers can form policies based on market conditions without the State Department of Insurance approval. So, you need to remain in tune with the offering and hire a broker who understands the marketplace.
Self-insured Retention (SIR)
If you do purchase EPLI from the E&S marketplace, your policy will most likely contain self-insured retention rather than a deductible.
A SIR is a dollar amount specified in a liability insurance policy that the insured must pay before the insurance policy responds to a loss. The SIR applies to both defense and indemnity. Check out our YouTube channel for additional information about self-insured retention.
We find that self-insured retention ranges from $10,000 to $100,000, depending on the industry and prior history.
When consulting with clients, I advise them to consider a SIR as a ‘stop-loss’, meaning you know the most you can lose in any one EPLI claim.
Considering the SIR, is EPLI right for you?
In most cases, businesses can settle employment-related suits under the SIR. Some companies may even fare better without the coverage when considering the price of settlements in addition to the premium cost.
Sub-limits
It is also important to understand that sub-limits may apply to specific sections of the EPLI policy. A sub-limit is a fixed coverage amount available to cover a certain kind of loss.
One example of this is wage and hour coverage. According to Advisen, wage and hour laws violations are one of the largest employment practice risks employers will face.
The law requires employers to pay employees for all time worked, including any activity that is part of the job before or after they clock out.
Examples include:
· Travel time between jobs
· Booting up computers
· Time spent working during a meal or rest break
The rapid evolution of wage and hour exposure makes underwriting and pricing complex for insurance companies. Most EPLI policies contain sub-limits on wage and hour coverage to limit their exposure.
This means the provider will limit wage and hour claims to $100,000, $150,000, or $250,000 versus the $1,000,000 policy limit and the SIR will still apply.
I have read policies with a $100,000 wage, hour sub-limit, and $50,000 self-insured retention. In other cases, I’ve seen policies with $250,000 sub-limits and a $25,000 SIR.
It goes without saying that in these examples, one policy will contain far more value than the other.
Other sections of the EPLI policy that may have sub-limits include Crisis Event Expenses, Illegal Immigrant Investigative Defense Costs, and Workplace Violence Expenses.
Understand your options before making a choice and purchasing insurance.
Exclusions
Finally, you need to review and understand the exclusions on your EPLI proposal before purchasing coverage.
Exclusions will definitely apply. There is no such thing as an EPLI policy without exclusions.
Some standard exclusions include prior notice, intellectual property, ERISA, abuse, and a hostile work environment.
But here’s the kicker – Most policies contain a “no duty to defend” clause. In other words, if your insurance company will not defend you in a lawsuit for an excluded offense.
Now, you are burdened with the expense of retaining legal counsel and a possible judgment if you lose the case.
Understand your coverage so that you can best protect yourself and your business.
So what do we think about EPLI?
We still believe that businesses must consider an EPLI policy.
Being in my position for several years, I have witnessed many clients’ businesses saved by the protection provided by an EPLI policy.
Keep in mind that data shows the average cost to DEFEND an EPLI suit is $200,000 per claim.
And the average jury award is $250,000
If a case settles, the judgment averages $75,000.
These are big numbers that equate to significant losses for most businesses.
Consider how EPLI can protect yours.
Contact us today for more information.
