Coverage Toolbox: Understanding the Value in EPLI Protection

In today’s workplace, employment practice liability insurance (EPL) is critical for small business owners. This important coverage protects small business owners from employment claims brought by full time, part time or seasonal employees and independent contractors alleging discrimination, sexual harassment, wrongful termination or other defined wrongful employment acts. Defense costs and settlements associated with employment practices lawsuits can seriously threaten the financial stability of a small business. Producers should talk to their clients about PLM’s robust Employment Practices Liability (EPL) protection program that not only includes comprehensive coverage, but risk management support as well.

Earlier this year, we shared an article to help your clients avoid EPL Claims. We wanted to follow up here with additional information detailing actual claim examples** to show business owners how costly and damaging EPL claims can be for their business.

In our first example, an employee, who we’ll call Brad Brown, worked on and off for Conrad’s Construction Company. He had been fired due to performance and attendance issues. Although his manager followed up several times to advise him of these issues before terminating his employment, there was no formal documentation process in place. At the time of his termination, Brad apparently accepted the decision and moved out of the area. Conrad’s Construction Company heard nothing from Brad until the letter from his lawyer alleging wrongful termination.

The wrongful termination claim was settled for $40,650 with additional defense costs bringing the grand total to $54,705.

To avoid a situation like this, business owners should have a policy that clearly outlines attendance and performance standards. An essential best practice when it comes to staying protected against EPL claims is documenting an employee’s behavior and performance; both the good and the bad. Documenting, mutually reviewing and acknowledging employee behavior ensures communication standards between employee and the employer are known to both. Having these procedures in place can help aid your clients against potential lawsuits. 

In a second scenario, the owners of a business that we’ll call Larry’s Landscape Supply received a letter from a former employee, alleging retaliation for reporting a work-related injury and demanded $35,000. The claimant, who we’ll call Pete Snow, filed with the EEOC (the Equal Employment Opportunity Commission which is the national clearinghouse for these claims) and they dismissed the claim. Pete had been spoken to several times about his poor work performance, prior to his termination. Larry’s Landscape Supply had documentation to support the conversations that took place. On Pete’s last day, he claimed his back was hurt and left to go to the doctor, at which point he was terminated.

Even though the EEOC dismissed the case, the parties agreed to settle the matter through informal negotiations. Pete’s wrongful termination claim was settled for $15,000 and the insured was reimbursed for $23,883 in defense costs. The total paid loss was $38,883. 

It’s critical for your clients to know that even groundless claims need legal defense. Often the responsibility to pay for these legal costs falls on the business and not the claimant. While your client might think they are protected with a standard general liability policy, producers should inform them that these policies do not respond to discrimination, harassment, or wrongful termination claims. 

Finally, we’ll offer one last scenario. A small business that we will call Pat’s Plumbing Supplier received a complaint from the EEOC that their former employee, who we’ll call Mary Murphy, alleged discrimination based on retaliation and gender. Mary had reported sexual harassment involving her male manager. She was the only female manager and alleged that she was undermined, treated poorly and that she had endured several instances of sexual harassment. The HR manager was looking into the matter at the time when Mary gave two weeks’-notice and the letter from the EEOC was received.

The parties agreed to settle the matter through informal negotiations facilitated by the EEOC. The discrimination and sexual harassment claims were settled for $10,000 and reimbursement of defense costs in the amount of $4,620, bringing the total paid loss to $14,620.

Most small businesses in the wood niche do not have extensive legal or HR departments on hand to assist with employment decisions and this makes these businesses more prone to potential claims. When it comes to harassment and discrimination claims, it’s important for your clients to know that not only do federal laws apply, but so may state, city and local discrimination and harassment ordinances. Producers should encourage their clients to establish a zero-tolerance policy for sexual harassment and discrimination that is posted in the workplace to try to deter any potential misconduct.

PLM’s EPL coverage is a price-competitive, comprehensive program that includes coverage for discrimination, harassment, wrongful termination and provides key legal defense from experienced specialized employment law firms. We also offer complimentary access to valuable employment risk management services online and a toll-free Legal Advice Line.

**Names, characters, and business are fictional. Any resemblance to actual persons, living or dead, or actual events is purely coincidental.

© 2021 The Hartford Steam Boiler Inspection and Insurance Company (“HSB”). All rights reserved. Coverage and associated services reinsured under an arrangement with HSB. This content is intended for informational purposes only and does not modify or invalidate any of the terms or conditions of the policy and endorsements. Claims are for illustration purposes only. For specific terms and conditions, please refer to the coverage form.