Overcoming common misconceptions about Employment Practices Liability Insurance for small businesses

As an insurance agent, you undoubtedly want to honestly and fairly guide your clients on choosing the necessary coverage to protect the business in which they have invested so much of their time and money. Some agents and many small business owners are unaware of Employment Practices Liability Insurance (“EPLI”) and its vital role in protecting businesses from costly and time-consuming employment claims. Consider the following:

  • Companies with less than 25 employees make up more than 90% of U.S. companies; HOWEVER, only 7% purchase EPLI coverage.1
  • According to the national law firm of Littler Mendelson (Littler), the median jury award in employment cases was $87,975 in 2014; however, even if an employment case settles prior to trial, expect typical attorney fees to be around $100,000.2
  • Businesses are more likely to have an employment practice claim than a fire.3
  • Many employment laws have no cap on financial damages, and apply to even the smallest of businesses.

Unfortunately, there are some common misconceptions about EPLI:

Myth 1: It’s too expensive—my insureds can’t afford it
The annual premium for an EPLI policy is almost always less expensive than defending even the simplest employment claim. According to Littler, the average award in discrimination casses in federal courts was $277,112 in 2014, with an average settlement in the amount of $126,000. Premiums for a basic standalone EPLI policy typically may range from hundreds of dollars to just a few thousand of dollars annually for a small business.4 EPLI policies are tailored to provide the necessary coverage, limits, and deductibles to protect against worst case scenarios, especially if the business is in a higher risk industry with a lot of turnover, like retail and hospitality establishments.

Myth 2: “Add-on” coverage to a Business Owners Policy (BOP) is as good as a standalone EPLI policy
Not necessarily. Typically, an EPLI endorsement on a BOP or as part of a GL package has narrower coverage with lower and/or shared limits and often does not address the specific concerns of certain claims-prone businesses. Many do not offer valuable loss prevention services. To the contrary, a standalone EPLI policy provides a broader range of coverage, a separate limit, and can be tailored by a number of endorsements, such as defense costs outside limits, third party coverage, and coverage for independent contractors. A standalone policy often comes with loss prevention services.

Myth 3: Small business are like “family” and don't need EPLI
Even a family member and the friendliest of employees can bring claims. In fact, those are often the hardest to handle internally because of the emotions involved. An EPLI policy provides a standard mechanism for the handling of claims with concrete rules and expectations. Our standalone EPLI policy comes with valuable loss prevention tools like a hotline staffed by attorneys and sample employment policies to help businesses avoid claims.

Myth 4: Employment laws apply only to large employers

  • Equal pay laws apply to businesses with at least one employee.5
  • Businesses with 15 -19 employees are covered by the laws that prohibit discrimination based on race, color, religion, sex (including pregnancy and sexual orientation or gender identity), national origin, disability and genetic information.
  • State and local employment discrimination laws may also apply to smaller businesses.
  • Because small businesses tend to not have a dedicated HR or risk management department, it is difficult to keep abreast of employment law developments. To support a small business’ limited HR sources, ABA Insurance Services’ EPLI policy includes access to HR and employment-related services provided by Littler. Services include a toll-free helpline with access to an employment attorney, online access to an HR form and handbook library and anti-harassment training for employees.

Myth 5: If a client’s CGL and umbrella limits are $2 million, EPLI is not necessary
Most CGL and D&O policies specifically EXCLUDE employment practices claims--EPLI is an integral part of a company’s risk management program.

Myth 6: Applications take so long! I don’t have time to gather all the needed information
To the contrary! An agent can provide an EPLI quote for a small business client in under 10 minutes through ProCision, ABA Insurance Services’ easy online quoting platform for agents. To complete a quote, only basic information is needed: number of employees; terminations and layoffs as a percentage of the company’s workforce; claims or threats of claims by employees within the last five years; and salary ranges.

 

Sources
1. Whitepaper, “A Spotlight on the U.S. EPLI market,” Advisen, September 2014, advisenltd.com/2014-09-18/spotlight-epli-market
2. ABA Insurance Services’ survey of employment cases
3. eeoc.gov/eeoc/statistics/enforcement/charges.cfm; and usfa.fema.gov/data/statistics/order_download_data.html, Residential and nonresidential building fire and fire loss estimates by property use and cause (2003-2014)
4. ABA Insurance Services program data, based on common company and policy features, 2016. Higher risk industries and businesses may experience higher premium rates.
5. eeoc.gov/employers/smallbusiness/faq/do_laws_apply.cfm