No more excuses: Making the case for EPLI

By Francis J. Huver | June 19, 2006

Common misconceptions leave business owners, small and large, in the bare

Employment practices liability insurance has been available on a stand-alone basis since the early 1980s. The product was developed to provide protection against allegations arising from the employer/employee relationship. It shields employers — plus all current, former, and prospective employees, directors and officers, and the corporate entity — from a variety of wrongful employment acts.

One would only have to look at the recent trends in employment-related litigation to determine that EPLI coverage is an essential part of any company’s risk management strategy.

Last year, approximately 80,000 charges of employment discrimination were filed with the Equal Employment Opportunity Commission. This number does not include the thousands of legal actions brought under federal, as well as state and local, employment laws. In today’s litigious environment, discrimination suits are one of the most common heard in federal courts, behind only criminal and prisoner-related cases.

Despite these disturbing trends, it is estimated that less than one-fourth of all eligible companies purchase EPLI. Why would a firm leave itself exposed to such potentially devastating legal action?

Let’s take a look at several common misconceptions about why some business owners choose not to purchase EPLI.

MISCONCEPTION #1: My business doesn’t need protection.

There are numerous employment-related laws designed to protect individuals against certain wrongful acts committed in the workplace. Ignorance of these regulations is not a defensible position. Employers are expected to know and comply with the federal, state, and local employment laws that govern their businesses. For almost every federal law governing employment practices, there is a more stringent state-mandated statute on the books. Usually, a firm must be in compliance with the more restrictive of the two.

MISCONCEPTION #2: My business can absorb the cost of a lawsuit. Unfortunately, the only firms that still believe this are the ones that haven’t been sued yet. Legal actions can be very costly — and not only in terms of money. Key management and professional staff members within the organization may be asked to testify, give dispositions, or gather information regarding the case. These tasks divert attention away from matters that are important to running the business. A company’s reputation may also suffer if word of the lawsuit finds its way into the marketplace.

Here are some recent examples of employment-related judgments/awards: In September 2005, Wachovia Corporation agreed to pay $5.5 million for alleged compensation discrimination against more than 2,000 current and former female employees. In another settlement last year, Consolidated Freightways agreed to pay almost $3 million in a racial harassment case involving 12 African-American dockworkers at one of their facilities. And in February 2004, a judge ordered United Airlines to pay $36.5 million to settle a sex discrimination suit brought by 13 former flight attendants.

Financially devastating lawsuits are not confined to the Fortune 1000 companies. No employer, regardless of size, is immune.

The New York Attorney General’s office negotiated a settlement with a local pretzel company, under which the firm agreed to pay $450,000 in back wages to dozens of vendors who distribute the company’s goods in Central Park.

The last misconception these uninsured companies hold affects insurance agents the most. Many business owners think they’re already covered under their existing policies. As agents know, most business owner policies, workers’ compensation, general liability, and professional liability forms specifically exclude employment-related exposures. Agents failing to proactively educate their insureds may be opening themselves up for an errors and omissions claim.

Most basic employment practices liability forms cover claims of harassment, discrimination, and wrongful termination. Some of the more “robust” policies include coverage for such related actions as retaliation, libel, slander, failure to promote/grant tenure, and invasion of privacy. Minimum premiums for these traditional products usually average about $1,500.

Unfortunately, many smaller entities find that even these minimums are too high. In response, the marketplace has seen the emergence of specialized programs tailored for firms with 15 or fewer employees. Agents with significant blocks of BOP, workers’ compensation, general liability, or E&O business also have the option of attaching a separate limit of EPLI to their entire portfolio. This initiative (appropriately called Portfolio EPLI) has the ancillary benefit of spreading the risk and reducing premiums charged for the EPLI portion.

Given the variety of EPLI coverages now available in the marketplace, including programs for small businesses, there is little reason why agents would not provide clients the facts about their employment related exposures, or pass on the potential for significant premium income selling this important product.

Francis J. Huver is the chief financial officer of Rockwood Programs Inc. Rockwood is a national market for EPLI. Their Rockwood Guardian EPLI product is tailored to firms with 15 or fewer employees. For more information, contact, or visit

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