Employment Practices Liability Insurance

May 31, 2012

Employment practices liability (EPL) insurance is an increasingly popular  type of coverage that protects businesses from the financial consequences associated with employment-related lawsuits. EPL may cover lawsuits involving a company's directors and officers, it can also protect against charges of racial or age discrimination, sexual harassment, wrongful termination, or noncompliance with the Americans with Disabilities Act. The Doctors Insurance Agency in Northern California has been studying this market for ten years;  we are proud of the expertise that we have developed in this area and the competitive, comprehensive insurance solutions that we have available to us.

Employment Practices Liability insurance can help protect businesses against legal conflicts that flare up between employees and third parties, such as vendors or customers or payers.  This third party employment practices liability coverage is important when Anesthesiologists or Emergency Physicians are spending increasingly more and more hours in the hospital.  If a third-party coverage endorsement is secured as part of the EPL policy, these hospital based specialty groups are covered with this insurance.

The market for EPL insurance coverage began to expand in the 1999–2003 period.  During this time, statistics of employee lawsuits were climbing and carefully tracked.  Employees brought more than 403,000 charges under all laws with the Equal Employment Opportunity commission. "The median compensatory jury award for employment practices liability cases rose 18% in 2003 to $250,000.   About 75% of employee-generated claims are completely without merit, but they are expensive to defend." The median award in 1997 was around $140,000. The usual cost of defending a groundless action is around $10,000.  So, often the employment related claims were baseless, and costly.

Still, there is the feeling that this is an insurance policy for the companies that employ more than 500-employees, certainly employees that do not exceed the  50-employee range are not as likely.. Employees suing an employer do so largely in order to get substantial awards. And, the small medical practices really cannot afford not to have this insurance in place.

EPL insurance pricing is usually built on a formula based on employment size, with, for example, $400 premium per employee for the first 50 and then lesser additional amounts for larger groupings. For health care organizations, A minimum annual premium of $1,000 is likely.

In our agency, where we have approximately 3,000 medical practices insured; we have offices, individuals, practitioners, nurse practitioners, physician assistants, facilities and surgery centers, almost every quarter we hear of another lawsuit commencing in this area.

Obviously the small business owner must weigh risks and costs very carefully. Standard liability insurance policies do not provide adequate coverage for employment-related risks. The premium for employment practices liability has come way down.  The life savings of the small business owner are often tied up in the company and may have to be protected, this is a smart way to transfer the risk from the business owner/physician to the insurance company.

But employment practices liability insurance policies should be studied carefully before reaching a "buy" decision.  Certainly price is important, but understand that the policies can vary widely in terms of price and breadth of coverage.

Negotiate to build a policy that offers comprehensive coverage. Make sure you look carefully at the coverage offered for the many evolving trends in employment practices related claims: wage and hour, failure to promote, failure to supervise, creating a hostile work environment.

Negotiate for control of legal decisions when claims are filed. "Before you buy a policy, make sure what rights to retain counsel that it gives you. 

Many policies give the insurance company the right to designate counsel of its own choosing…. [In such cases], more often than not it will focus more on the costs of the attorney, rather than the quality of representation the attorney provides.

Examine losses covered under the policy. The majority of employment practices business insurance policies provide coverage of back pay, lost benefits, and legal fees. However, front pay, fines, penalties, punitive damages, and cost of accommodations and travel are often not covered. "Look carefully at what types of losses are covered," counseled Bland. "A policy that looks cheap on the front end may end up costing dearly if it does not cover all losses you could face in a lawsuit."