All employers face a potential loss because of the hiring, employment and potential firing of employees. Therefore, employers should purchase employment practices liability (EPL) insurance to protect themselves against damages from workplace events and allegations of wrongdoing by employees.
Today, claims are increasing, the market is hardening and premiums are going up for this type of coverage, says Stephen Stromsborg, assistant vice president at Momentous Insurance Brokerage, Inc.
“It’s important for businesses and homeowners with domestic staff to partner with a broker who can represent them well to insurance companies and get them as many options as possible,” he says.
Smart Business spoke with Stromsborg about how EPL policies work and the market trends that make this type of coverage advantageous.
What claims does EPL insurance cover?
It covers such things as wrongful termination, harassment, discrimination, defamation, unfair hiring and firing practices, failure to promote, emotional distress, retaliation and invasion of privacy.
Who should consider EPL coverage?
Both businesses and households that employ domestic staff should strongly consider purchasing the coverage.
Businesses’ general liability policies either specifically exclude employment-related claims or are very restrictive and not adequate enough to respond to EPL matters. In particular, companies with large employee headcounts and high turnover are more susceptible.
As for households employing domestic staff, a homeowner’s policy won’t protect against allegations of wrongful termination or sexual harassment by domestic employees like nannies, gardeners and estate managers.
Any employee can allege he or she was wrongly terminated or harassed while employed, and an employer has a legal duty to respond, regardless of the claim’s merit. Even if it’s dismissed, not litigated or doesn’t go to trial, the high-cost of defense and/or settlement can have a significant impact on a company’s or family’s financial stability and reputation, especially without insurance.
What is impacting this coverage today?
Employment-related charges in 2012 were 20 percent higher than in 2007, according to the Equal Employment Opportunity Commission (EEOC). Many employment practices claims go straight to lawsuits and are not reported to the EEOC, so this number could be even higher. Unemployment rates are one contributing factor; California is tied now for the highest unemployment rate at 9.8 percent. With rising unemployment comes the decision to layoff employees or risk being put out of business. Unfortunately, workforce cuts can lead to disgruntled former employees suing for allegations of wrongful termination.
With the increased claim volume, insurance companies have been paying out more for both defense and settlements in the EPL arena. This results in most insurance companies transferring additional renewal and new business premium costs to employers. Companies are also increasing EPL policyholders’ retentions and deductibles. Several EPL coverages have been restricted, so it’s important to have an open dialog. The broker needs to articulate what is and is not covered in these policies for clear understanding on both ends.
What can be done to mitigate EPL losses?
Important preventative measures are:
• Maintaining adequate compliance with employment laws in the workplace.
• Establishing formal harassment training with employees.
Employers also can reduce turnover, which has a direct impact on claims.
Implementing compliance and harassment training will convey a proactive risk management work environment to underwriters, and working with a broker who can articulate those measures can lead to insurance companies being more comfortable in providing coverage.
Who can help with coverage decisions?
EPL is a very tough market. With premium increases on the rise, employers should partner with a broker who has the expertise and marketplace relationships to place the appropriate coverage.
Stephen Stromsborg is assistant vice president at Momentous Insurance Brokerage, Inc. Reach him at (818) 933-2722 or email@example.com.
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