Inside coverage Featured

8:00pm EDT April 25, 2007
Business owners are well aware of how expensive defending themselves in a lawsuit can be, and that the proper insurance can lessen the burden. What they may not know is that more than half of all corporate claims are brought by employees, making Employment Practices Liability Insurance (EPLI) a specialized form of coverage that’s worth investigating.

Alfonso Galvez, commercial insurance broker with Westland Insurance Brokers, points out that EPLI is often an afterthought for employers.

“Generally, people are so busy building their business, they lose sight,” says Galvez, a 20-year veteran of commercial insurance. “People are concerned about maybe the theft of a computer or a fire that might happen in their facility. But one of the most common claims that can occur would be an employee-related claim.”

Smart Business spoke to Galvez about the role EPLI plays in protecting a company’s assets in the event that it’s the target of a work-related lawsuit.

What is EPLI and what kinds of claims does it cover?

It’s specialized insurance coverage that protects employers against claims in work-related lawsuits. It includes wrongful termination, harassment and discrimination based on age, race and gender.

There’s also an option to purchase third-party discrimination and harassment insurance. For instance, in a retail store a patron may feel like he or she is being discriminated against because of race. Or it could be a situation where you have a manufacturing company and perhaps a vendor pays a visit and the receptionist harasses that individual. These are examples of third-party claims as opposed to claims that take place within the work force of a particular company.

Other employment-related suits that may be brought against an employer and are included in this type of policy would be breach of an employment contract, negligent evaluation, wrongful discipline and mismanagement of employee benefit plans.

Who should consider EPLI?

I believe that every company should have this coverage in force. Companies that are most vulnerable are generally small to mid-size companies. They may not have either the necessary capital to defend themselves against an employment-related suit or other resources, such as a human resources manager who is current with rapidly changing employment policies.

What kinds of expenses does EPLI cover?

Among the costs that are covered in an EPLI policy are such things as judgments that are handed down in court. It also includes coverage for general expenses to discover what the alleged claim is or what occurred. Also included are legal expenses, which — particularly in California — can rise rapidly.

How does a company assess its risk for employee-related claims?

It’s determined by the type of company it is, how many employees it has, and if it’s had any past claims history. It also depends on whether or not the company has instituted any kind of employment policies and procedures. It’s really important that the company have an actual employee handbook and policy manual to help reduce the likelihood of a claim.

Does employment law affect EPLI?

Yes, it really does. One of the challenges that most companies have is trying to stay current with all the changes in state and federal employment-related laws. That’s why it’s especially important to have this kind of coverage because it adds another layer of protection in the event something changes that a company is not aware of.

What else can EPLI coverage provide a company?

One of the newest features of many Employment Practices Liability polices is that insurance companies include free legal hotline assistance. A number of insurance companies provide a set period of prescribed time to call a designated law firm to ask questions about either employment law or a situation that has arisen within your company.

You can also get what is referred to as loss-control services. This provides assistance with the information you can include in your employee handbook and policy manual. For instance, you would include information related to zero tolerance in the workplace and state in the handbook how you would handle a report of an alleged harassment or discrimination incident.

Some policies also provide you the option of choosing your own counsel and therefore having more control over the defense and settlement of your claim.

ALFONSO GALVEZ is a commercial insurance broker with Westland Insurance Brokers. Reach him at (949) 862-3323 or agalvez@westlandib.com.