Thursday, November 12, 2015

Why your Business needs Coverage against Employee Discrimination Claims

The news that Ellen Pao dropped her appeal against her former employer Kleiner Perkins in the highly publicized discrimination case may seem like good news for employers. The fact that she has to pay $275,000 in costs as awarded by the court may cause those contemplating such actions against their employers to reconsider their plans before proceeding. However, this kind of outcome is far from normal. According to a study done in 1998 by the Risk Management Consulting Services of PricewaterhouseCoopers, almost 70% of employment claims result in a monetary award and the average amount was, at that time, $1.5 million. The increase in employment related lawsuits and the higher awards being given today by courts have increased the risk for employers exponentially.

With the best of employer intensions and the strictest of polices in place, there is always room for an employee to bring a case against the employer. That is why employment practices liability insurance (EPLI) is an essential coverage for all businesses.

Why EPLI?

Insurance companies started offering EPLI in 1992, after the sexual harassment claims made during the confirmation hearings of Supreme court Justice Clarence Thomas. Also it was at that time that the Civil Right Act was amended to allow juries to award punitive and compensatory damages to plaintiffs inemployment related cases. In the years since then, the number of sexual harassment and discrimination cases have been steadily increasing. While cases against large corporations garner the most publicity, it is the small and new businesses that are often most at risk. Large companies have legal departments and established practices to control employee hiring, discipline and termination. Smaller businesses usually do not have such processes in place and tend to suffer the most.

What Does EPLI Cover?

EPLI provides employers with indemnity coverage for defense costs, judgments and settlements in the following basic areas:
  • Sexual harassment
  • Discrimination
  • Breach of employment contract
  • Wrongful termination
  • Wrongful discipline
  • Negligent evaluation
  • Failure to employ or promote
  • Denial ordeprivation of career opportunity
  • Wrongful infliction of emotional stress or trauma
  • Mismanagement of employee benefits
Commercial General Liability Insurance Is Not Enough

Many employers make the mistake of thinking that their business owners liability policies will cover them against the kind of issues mentioned above. It does not. EPLI is a separate coverage that is normally offered as an extension of coverage on umbrella liability or Directors and Officers (D&O) liability policies. Most D&O policies only cover specific individuals like executives, supervisors and so on, but not the company as a whole.

EPLI Is Essential

The cost of EPLI is often surprisingly low. How much it will cost will depend on factors like the number of employees in a business, the number of prior suits filed against the company, the volume of employee turnover and the presence of effective employment rules and practices. The actual cost can be as low as $2,000 per year. If you do not have EPLI or are unsure about your coverage, contact an insurance broker to discuss your current situation and what you can do to increase your protection.

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