Did You know:
- The Equal Employment Opportunity Commission (“EEOC”) received 91,503 charges of discrimination in 2016.
- The EEOC collected approximately $348 million dollars in monetary benefits for employees.
- Private businesses with 100 or less employees are the most often sued for federal discrimination claims.
- The average cost of an EEOC lawsuit exceeded $105,000.
If you are a business owner, these statistics should interest you. If your company received a demand letter, charge of discrimination or a lawsuit, alleging a discrimination, harassment or retaliation claim, how would you cover the cost of defending and resolving such a claim? The answer – Employment Practices Liability Insurance (“EPLI”).
I interviewed Mike Shea, President of Shea Barclay Group to provide some insight on EPLI coverage. Shea Barclay is an independently owned and operated firm specializing in Professional Liability insurance and Risk Management for law firms. Mr. Shea’s firm understands the importance of risk management particularly involving claims which can arise out of the employer/employee relationship and was kind enough to lend us his expertise in this area.
What is EPLI?
EPLI covers companies (employees, directors, owners, officers) against claims or lawsuits filed by employees, former employees, or job applicants related to their employment relationship with the company.
What types of claims are covered?
The simple answer is that it covers basic EEOC related claims. Those are things such as harassment, discrimination (race, age, gender, disability, religion, color, national origin), negligent retention/hiring/supervision, Family and Medical Leave Act and retaliation.
Are there any exclusions?
In Florida and several other states, punitive damages are excluded. EPLI policies also typically exclude coverage of liquidated damages, intentional or criminal acts. Damages in a wage and hour case are also excluded. However, EPLI coverage will provide a defense for those claims. Additional exclusions may apply so it is important to review your policy in full before procurement.
How much does EPLI coverage cost?
In determining premiums, carriers analyze factors such as industry, number of employees, limits of liability, size of deductible and claims history. Industries such as professional services, restaurants, transportation and blue collar tend to have higher premiums. However, compared to other insurance premiums are relatively low. For example, based upon a $1 million limit, an employer with:
- 1-10 employees – annual premiums can be as low as $1,000
- Up to 50 employees – annual premiums of approximately $3500
- Up to 100 employees – annual premiums of approximately $5000
- 100+ employees – annual premiums of approximately $10,000
- 250 employees – annual premiums of approximately $18,000-$20000
Premiums are paid monthly but some carriers may offer other payment options.
What are the deductibles and how is the amount determined?
Typically, clients choose the deductible amount. However, as the number of employees increases, the minimum deductible amount may also increase.
Who is responsible for paying the costs up to the deductible amount?
The insured pays up to the per claim deductible amount.
What happens once the deductible is exhausted?
Once the deductible is exhausted, the carrier steps in and pays from the policy.
Can a company select its own counsel?
It varies by carrier. Options include (1) carrier selects from its panel of attorneys; (2) mutual selection between carrier and insured; (3) insured selection of own counsel. If a company can select its own counsel, the best time to do so is during the application process.
What should a company do if it receives a claim and it has EPLI coverage?
As soon as the company becomes aware of a claim or as soon as practicable, the company should notify its broker and/or carrier. Any written demand or notification will be considered “awareness.”
Who decides whether to settle a claim?
Mostly the carrier controls. However, the insured must provide written consent. Most carriers will not force the insured to settle if the insured has a good reason to continue the defense. But If the insured unreasonably withholds consent, the carrier will invoke the “hammer clause,” which allows a carrier to limits its claim payment to no more than the amount if could have settled for, plus defense costs. The insured would then be on the hook for the difference over the recommended settlement.
What are the benefits of having EPLI coverage?
- Affordability - An average EEOC claim exceeds $100,000. For many smaller businesses, this is crippling.
- Cost of defense - The carrier will pay the cost to defend the claim, including retaining competent counsel.
- Pre-claims assistance – Many carriers provide free confidential attorney hotlines and support in the event of a potential claim.
The risk of having one of these claims filed against a company is very real and can be financially devastating. Not having EPLI coverage can be a very costly decision. If you have employees, you need EPLI coverage. The benefits of this coverage significantly outweigh any costs.
What should a company look for in choosing the right carrier?
You are looking at soft costs because EPLI policies across carriers are pretty similar. But some factors to consider include: (1) exclusions; (2) claims expense; (3) treatment of deductible; and (4) premiums.
The Bottom Line
The bottom line is that if a company has employees, not only should they have competent employment counsel like Smoak, Chistolini & Barnett, they also need to have EPLI insurance.
This article was written by Kelly Charles-Collins, Esq., Partner at Smoak, Chistolini and Barnett, www.flatrialcounsel.com, (813) 221-1331 based upon an interview with Mike Shea at Shea Barclay Group (813) 251-2580.
