A relatively new form of insurance, employment practices liability insurance (EPLI) became popular in the 1990s after the 1991 Civil Rights Act amendments increased the frequency of discrimination claims in the workplace. EPLI typically covers defense costs, judgments and settlements of employment issues ranging from sexual harassment to wrongful termination.
While many employers do not have the financial wherewithal to be able to cover the cost of EPLI on top of other insurance coverage, there are still proactive measures a company can take to avoid employment-related lawsuits and obtain insurance coverage if it is needed.
- Evaluate your policies. Ensure that your company has policies in place regarding management training, harassment, retaliation, break time, unauthorized work time and other wage- and hour-related issues.
- Evaluate employee work. This includes auditing employee classifications (to avoid extremely costly misclassification lawsuits) and reviewing (and providing feedback on) employee work performance.
Not only will these practices contribute to the health of your business, but they will also help you obtain a good price on an insurance premium — you are less of an insurance risk when you can show you are proactively avoiding employment-related claims. In addition, even if an EPLI policy covers only the costs of defending employment-related claims, that is still extremely valuable coverage — defending such a claim incurs attorney’s fees, among other costs.
Finally, as seen in a recent 4th Circuit case, Republic Franklin Insurance Co. v. Albemarle County School Board, any policy’s language (even one that is not EPLI) can potentially be read to cover FLSA losses. Remember that an insurer’s duty to defend is broader than its duty to indemnify, so even if your insurer does not have to indemnify you for a wage and hour claim, it may still have to cover the costs of defending you against the claim. Employers need to be willing to challenge their insurers’ coverage denials.