Lawsuits can pose a considerable threat to businesses, and actions related to employment practices should be a particular area of concern to business owners. According to researchers, about 60 percent of employers can expect to be sued by a prospective, current or former employee.
“It’s the increasingly litigious nature of our society,” says Derek M. Hoch, president of Leverity Insurance Group. “These lawsuits really started to trend upward when the market plummeted to its lowest point in combination with the state of the economy over the past four to five years. Desperate times can sometimes lead to desperate actions. When people couldn’t find employment, they filed suits against employers who let them go during that period of recession.”
Smart Business spoke with Hoch about how employment practices liability (EPL) insurance can help businesses manage risks associated with such lawsuits.
What are the most widely recognized types of employment-related lawsuits?
- Wrongful termination — Discharging an employee for invalid reasons.
- Discrimination — Denial of equal treatment to employees of a protected class.
- Sexual harassment — Workers subject to unwelcome sexual advances, or obscene or offensive remarks.
Lawsuits can also be based on things such as wrongful failure to employ or promote, wrongful discipline and religious discrimination.
How can EPL insurance protect employers?
More than half of all claims for employment-related liabilities are against businesses with fewer than 50 employees. Claims can be costly, especially if a case has the ability to go on for an extended period of time. The average cost of an employment lawsuit exceeds $270,000. Even if the lawsuit is frivolous, it still takes time away from operating your business.
An EPL policy will help to pick up these defense costs and any judgments or claims assessed against your business. In some instances, these cases are settled before they even go to court; EPL will pay for settlement costs as well.
EPL also covers claims filed with the U.S. Equal Employment Opportunity Commission (EEOC). In 2012, the EEOC reported 99,947 charges for harassment, and costs of resolving these claims were $364.6 million.
Why is purchasing third-party EPL insurance so important?
Third-party EPL addresses the coverage gap that leaves employers vulnerable to discrimination and harassment lawsuits from customers, clients, vendors and suppliers. Standard EPL policies only cover actions related to employees or prospective employees, and most general liability policies specifically exclude harassment and discrimination.
More insurance carriers are including third-party coverage as part of EPL policies because every company is at risk. It’s vital for any business that deals with customers on a daily basis.
Other than insurance, what approaches can companies take to protect themselves?
Have a legal professional review your employee handbook to ensure it contains all the necessary information, including policies covering sexual harassment, discrimination, equal opportunity, grievances, discipline, termination, performance evaluations, Internet usage, pregnancy leave, hiring and employment at-will. Then make sure employees sign off that they’ve read it.
If you don’t have a handbook, you may not be able to secure EPL insurance because insurance carriers take this very seriously. They want to see that you’ve taken proper steps in terms of risk management and providing a safe workplace.
You can protect yourself even more by making sure you’re following proper procedures regarding hiring, firing, performance reviews and even interviewing prior to hiring someone.
Taking these steps also reduces risk, which will generally translate into lower insurance premiums. EPL insurance works hand-in-hand with your internal employment practices to provide necessary resources to defend your company against a lawsuit or claim.
Derek M. Hoch is the president at Leverity Insurance Group. Reach him at (216) 861-2727 or firstname.lastname@example.org.
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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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Insuring your business against an emergency is a vital and prudent step to take when owning a business. Most businesses have workers’ compensation and insure their buildings, but there are other types of insurance that business owners may want to consider as well. Choosing the right type of insurance for your business can seem like a daunting task; however, when you choose the right insurance, it can protect you and your business from substantial loss. Many businesses are underinsured because of the expense, but in the event of a crisis, insurance policies can help your company weather the storm and reduce financial loss.
Smart Business spoke to Jim Terrell and Donna Mittendorf of Comerica Bank about some of the most common types of insurance that could help safeguard your business.
What is business interruption insurance?
Terrell: Many businesses that close due to a fire or some catastrophic situation never reopen. It’s not because they didn’t insure their building, but rather it’s because the owners relied on their business to provide them with a steady paycheck. Business interruption coverage pays your lost salary as well as your ongoing expenses, including payroll of key employees and the extra expenses to get back into business more quickly. It could be good coverage to have because if the insurance company is slow taking care of the claim, you’re on their payroll.
What is the benefit of accounts receivables insurance?
Mittendorf: Accounts receivables insurance, or credit insurance, protects your business if your clients don’t pay you. This type of insurance can be particularly useful for new, rapidly growing businesses or if you have foreign clients. Accounts receivables insurance protects your company against loss on receivables, including default, bankruptcy or simply slow payment. This insurance can also protect a company that is unable to collect receivables due to loss of underlying records; for example, ones lost in a fire or flood.
What types of companies could benefit from having product liability insurance?
Terrell: Companies that manufacture, wholesale, distribute or retail a product may be liable for its safety. Product liability insurance protects against financial loss as a result of a defect in a product that causes injury or bodily harm. The type of product you sell should be factored into the coverage amount.
What is employment practices liability insurance?
Mittendorf: This insurance covers allegations of discrimination, sexual harassment and wrongful termination. Many businesses, especially small businesses, may forego this type of insurance because they have few employees or they consider themselves fair employers. That may be the case, but that doesn’t mean a scorned employee won’t allege otherwise. These types of allegations are by nature personal affronts to business owners. The advantage of this insurance is that it has a tendency to depersonalize it as much as it can be.
Is there insurance for home-based businesses?
Terrell: Yes, there is, since most homeowners’ insurance policies do not generally cover home-based business losses. Depending on what you need, you can add riders to your homeowners’ policy. Remember that homeowners’ policies only cover certain facets of home-based businesses, so you may need to purchase additional policies to cover other risks, like general and professional liability insurance.
What if my business has vehicles I need to insure?
Mittendorf: If you have a business that needs vehicles, you should consider commercial auto insurance. This type of insurance insures one or multiple vehicles with liability and property damage liability, as well as additional vehicle coverage like comprehensive and collision coverage. If your company has numerous vehicles and drivers, ask your insurance agent if you qualify for a fleet insurance policy.
How often should I review my insurance coverage?
Terrell: Generally speaking, you should assess your insurance on an annual basis. As your business grows, your liabilities grow and you may need additional or different types of insurance. You don’t want to be caught underinsured if something happens. You should discuss changes in your business with your insurance broker so he or she can determine if your current insurance is still meeting your business’s needs.
JIM TERRELL and DONNA MITTENDORF are senior vice presidents for Comerica’s Texas Business Banking Division. Comerica Bank is the commercial banking subsidiary of Comerica Incorporated (NYSE: CMA), the largest U.S. banking company headquartered in Texas, and strategically aligned by three business segments: The Business Bank, The Retail Bank, and Wealth Management. Comerica focuses on relationships, and helping people and businesses be successful. In addition to Dallas/ Fort Worth, Houston, San Antonio, Kerrville and Austin, Texas, Comerica Bank locations can be found in Arizona, California, Florida and Michigan, with select businesses operating in several other states, as well as in Canada and Mexico. To receive e-mail alerts of breaking Comerica news, go to www.comerica.com/newsalerts.