EPLI stands for Employee Practices Liability Insurance. It covers, among other things, certain claims for harassment and discrimination brought against employers. Many employers either never think about such insurance coverage, or assume that it is part of their Comprehensive General Liability (CGL) coverage. However, most CGL policies do not provide such coverage. As a result, it is in employers’ best interests to become aware of the existence of EPLI, weigh its costs and benefits, and then make a conscious decision whether to buy coverage or to go without.

If an employer is unaware that the coverage exists, the employer probably has not given much consideration to employee claims, and may not have taken appropriate steps to reduce the risk of a claim.

What EPLI Coverage Does
Examples of some coverage features that may be available in an EPLI policy are punitive damages coverage (where insurable by law); third party coverage for claims of harassment or discrimination brought by customers, clients or other third parties; coverage for claims by partners and for claims for failure to make partner; independent contractor, leased employee and volunteer coverage; coverage for defense costs; worldwide coverage; and non-cancelability by the insurer except for non-payment of premiums.

Whether the employer gets to select counsel and the ability, if any, of the employer to decide which claims will be settled, along with reporting periods and the amounts of deductibles, also vary from policy to policy.

Insurability
There are many factors that an EPLI underwriter will consider in determining whether to insure an employer and the cost of the premium. Even if an employer does not purchase EPLI coverage, these are factors that all employers should consider reviewing in order to reduce the risk of a claim. For example:

• How many claims has the employer had in the past three years?
• How many employees does the employer have, and what is the annual turnover?
• What are the employees paid, and what is the business’ gross revenue?
• Does the employer use any form of alternative dispute resolution in connection with employee claims?
• Does the employer have a human resources department?
• Does the employer have written procedures regarding termination, hiring and discipline?
• Is there an employee handbook, and, if so, does it contain a comprehensive “employment at-will” statement?
• Is there a written procedure for handling employee complaints of harassment and/or discrimination?
• Has the employer informed employees that incidents of sexual harassment may be reported without fear of retaliation?
• Does the sexual harassment and/or discrimination policy cover harassment or discrimination by third parties in addition to employees?
• Does the employer use any tests to screen applicants for hire or promotion?
• Are all prospective employees required to complete an employment application prior to being hired?
• Is there a formal orientation program for new employees?
• Are regular, written performance evaluations prepared and provided to all employees?
• Does the employer plan to close any branches or have layoffs?
• Does the employer have a formal outplacement program to assist former employees in obtaining alternate employment?
• Does the employer require terminations to be reviewed by outside counsel?
• Is there a policy concerning reasonable accommodation for employees or applicants with disabilities?
• Does the employer provide employees with client relations training designed to avoid third party discrimination and harassment claims?
• Has the employer acquired any other companies within the last ten years and, if so, did the acquisition include assumption of liabilities?
• With respect to any acquisitions, were any employees terminated or are terminations anticipated?
• Does the employer provide regular sexual harassment and discrimination awareness training to all employees, or at least to managers and supervisors?

Reducing the Employer’s Risk
EPLI policy applications are likely to inquire regarding some or all of the above factors. Having the right answers to each of these factors does not guarantee that an employer will not face a claim, but will go a long way towards reducing the employer’s risk. Regardless of whether an employer ultimately decides to purchase EPLI coverage, going through the exercise of analyzing the factors that an insurer would use to assess risk and using the results of that analysis to make positive changes is a sound business practice.

Also, attorneys can provide valuable assistance to their clients by advising them of the risk of an EPLI claim, advising them to contact their insurer if they have an incident that may qualify as an EPLI claim under any applicable policy, and assisting their clients in making changes to reduce the risk of a claim.