Emerging Business Insights
Does Your EPL Policy Cover All of Your Employees?
NOVEMBER 4, 2024
All companies are exposed to employment practices liability (EPL) claims, and the frequency and cost of their losses continue to rise. While most claims are first-party and brought by employees, the number of third-party claims for discrimination and harassment is increasing.
EPL insurance provides crucial protection to your business, but if the policy has a narrow definition of “employee,” your business could face significant exposure to loss.
EPL policy forms are not standardized from one insurance company to another. Each insurance company’s policy has its own unique features — and depending on how narrowly it defines “employee,” it can leave businesses exposed to an uncovered claim.
The average EPL lawsuit award is approximately $250,000, and this figure has been steadily increasing over the past several years. Even lawsuits that are ultimately dismissed can cost well over $100,000 to defend.
How Can Businesses Prevent Uninsured EPL Claims?
While insurance policies typically focus on employees in traditional roles, USI Insurance Services’ exclusive ExecuSafe program broadens the definition of “employee” to cover a wider range of workers, which can include:
- Consultants
- Volunteers
- Leased workers
- Interns/students
- Seasonal workers
- Independent contractors
Expanding the definition of “employee” to include non-traditional positions can help businesses by significantly reducing their exposure to uncovered claims.
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USI identifies non-traditional employees who need to be covered, and works with underwriters to expand the definition of “employee” in the policy. |
Why Is Redefining “Employee” a Good Long-Term Strategy?
Redefining “employees” to encompass non-traditional positions is not just a strategic move for businesses to mitigate uninsured exposures, it’s a forward-thinking approach that aligns with the evolving nature of work.
USI works with businesses to evaluate their risk profile and identify the non-traditional employees who need to be covered. Our ExecuSafe program:
- Offers insureds the benefit of coverage for first- and third-party claims brought against them for actual or alleged wrongful acts committed by non-traditional classes of “employees” with its expanded definitions of “claim,” “defense,” and “insured.”
- Typically includes a sublimit for wage and hour claims, which are commonly excluded on ordinary policies.
- Extends coverage for immigration-related defense costs, including allegations of illegal hiring (subject to a sublimit).
A manufacturer expanded its operations and hired independent contractors to solicit new customers.
One of these independent contractors identified an OSHA violation at the manufacturer’s facility and reported it to the plant manager. When the manufacturer’s CFO realized an independent contractor submitted the report, that independent contractor was terminated.
Soon after, the independent contractor sued the manufacturer for retaliation. Unfortunately, the manufacturer’s EPL policy had a standard definition of employee that did not include “independent contractors,” so its policy did not respond to this claim, and it had to pay the $92,000 in defense and settlement costs out of pocket.
A dermatology practice contracted out its medical billing and collections responsibilities. The contracted employees were in regular contact with the practice’s patients, and occasionally found themselves in confrontations over billing and collection issues.
The practice received notice it was being sued by a former patient, who alleged discrimination from one of the billing agents over an unpaid charge. The patient insisted that even though they made a good faith effort to pay an overdue bill, they were still referred to collections by the billing agent due to racial bias.
If the practice had been a USI client, our exclusive ExecuSafe program would have expanded the definition of “employee” to include contracted employees, and therefore would have provided coverage for this suit, up to the insured’s policy limits.
How USI Can Help
It’s important to understand the EPL exposures that exist when your business uses independent contractors, leased employees, volunteers, interns, or other non-traditional employees. USI helps protect clients by expanding the definition of “employee” and improving claims outcomes. We:
- Review their personnel to identify if they use any non-traditional employees.
- Analyze existing EPL coverage to determine if exposures related to non-traditional employees are covered.
- Negotiate with insurance company to expand the definition of “employee” to include any non-traditional positions.
In addition to the exposures discussed in this article, USI’s analysis of liability insurance programs can identify other opportunities to reduce uninsured exposures or create premium savings. To learn more about the risk management services available through USI, email select.business@usi.com.
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