What Is EPL Insurance—and Why Does It Matter?

Businesses of all sizes face the risk of current or former employees bringing lawsuits for a variety of reasons. These claims can result in significant financial losses. In such cases, EPL Insurance provides protection.

What is EPL Insurance? Also known as EPLI, Employment Practices Liability Insurance (EPL or EPLI) protects businesses from employment-related claims and lawsuits.

What Is Employment Practice Liability Insurance?

EPL Insurance covers a wide range of risks, including (among others):

  • Discrimination claims (including race, gender, and age discrimination)
  • Sexual harassment allegations
  • Wrongful termination
  • Invasion of privacy
  • Mismanagement of employee benefits
  • Breach of employment contract

EPL Insurance typically covers defense costs, settlement payments, and even court-awarded judgments. It also provides access to a network of experienced attorneys who specialize in employment law.

Keep reading for more information about what EPL Insurance is and why it’s an increasingly important tool for doing business in today’s litigious society.

Why Is EPL Insurance Important?

Insurance broker uses laptop computer to review eBook he downloaded about what Employment Practice Liability Insurance is.Naturally, businesses need to implement proactive employment risk management strategies. They should establish clear employment policies and procedures, provide regular training to employees on appropriate workplace behavior, and maintain updated employee handbooks outlining expectations and guidelines.

But even the most proactive and diligent companies run the risk of lawsuits from present or past employees. What’s more, claims can arise from relationships with independent contractors, applicants, and certain other third parties.

Employment-related claims can be financially devastating for businesses. Small and medium-sized enterprises, in particular, may not have the financial resources to handle them.

What Employment Liability Insurance does is help mitigate these risks.

EPL Insurance provides:

  • Financial protection against costly legal defense expenses.
    The legal costs involved in defending against employment-related lawsuits can quickly add up. EPL coverage helps mitigate these costs. It allows businesses to focus on operations rather than worry about possible financial ruin.
  • Coverage for potential settlement payments or court-awarded judgments.
    In the event a claim results in a settlement or judgment against the insured business, EPL coverage can provide the funds needed to cover these expenses. This protection can be especially crucial for small and medium-sized companies.
  • Access to experienced employment law attorneys.
    These professionals specialize in employment-related litigation and can provide invaluable guidance and support throughout the legal process. By working with knowledgeable attorneys, businesses can better understand their rights and obligations, as well as develop effective defense strategies.
  • Inclusion of certain third parties in its coverage.
    A robust EPL policy will extend coverage to independent contractors, job applicants, and certain third parties who have a professional relationship with the insured company. This broader scope ensures businesses enjoy adequate protection against a variety of potential risks and liabilities.

What’s the Difference Between D&O and EPL Insurance?

Directors and Officers (D&O) Insurance and EPL Insurance are both essential coverages for businesses looking to protect themselves from potential risks and liabilities. While they may seem similar, important differences exist between them.

The main distinction lies in the scope of coverage and the parties involved.

  • D&O Insurance protects a company’s individual directors, officers, executives, and board members from personal liability for acts or omissions committed in their capacity as corporate leaders. It covers claims related to alleged breach of fiduciary duty, negligence, mismanagement, or other wrongful acts.
  • EPL Insurance protects the company as a whole from employment-related claims brought by employees.

Another significant answer to the question “What is Employment Practice Liability Insurance, and how does it differ from D&O Insurance?” lies in the nature of the claims covered.

  • D&O Insurance typically focuses on the decision-making and actions of directors and officers that may affect the company’s financial stability.
  • EPL Insurance focuses strictly on claims arising from employment practices.

Additionally, policy terms and conditions between the two coverages can vary.

  • D&O Insurance policies often have higher limits and broader coverage options, since they protect high-ranking individuals who may face significant personal liability.
  • EPL Insurance policies may have limitations and exclusions specific to employment-related claims, and may have lower limits.

The Bottom Line: Is EPL Insurance Worth It?

Is EPL Insurance coverage worth the investment? The answer depends on several factors.

Businesses should consider whether they would be able to cover the costs and damages associated with mounting a defense in an employment-related lawsuit. These expenses can quickly become exorbitant.

EPL coverage can also help mitigate reputational risks associated with employment-related claims. Such claims can seriously damage a business’s reputation. That damage can lead to lost customers and business opportunities, and even potential lawsuits from other parties.

Finally, EPL Insurance can provide much-needed peace of mind. It can help your client focus on running operations without fretting over the potential financial burden of a lawsuit.

It’s important to note EPL policies may have limitations and exclusions. Thoroughly reviewing the terms and conditions of any policy to understand the extent of coverage provided is crucial.

The cost of EPL coverage is another consideration. Premiums will vary based on factors such as the size of your business, industry, claims history, and risk exposure.

Ultimately, the decision of whether or not to invest in EPL Insurance depends on your business client’s individual circumstances. You can consult with your client and help them reach an informed decision.

Do you want to learn more about what EPL Insurance is and whether it makes sense for your clients? Download our free eBook, How to Become Your Clients’ D&O Insurance and EPLI Expert.

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