Most general liability and professional liability insurance policies exclude incidents involving employment practices.
In my 18 years as a commercial insurance agent, I’ve had the pleasure of working with hundreds of employers of varying sizes. No matter the number of employees, however, all of these employers share at least one thing in common: They all have an exposure arising from their employees. Claims from employees alleging discrimination, sexual harassment, wrongful termination and failure to fairly compensate are all too frequent. Unfortunately, unless an employer has secured the right coverage, they can find themselves “self insured” for resultant legal defense costs and any judgment or settlement.
Workers’ compensation policies don’t cover alleged employer misconduct except for those claims involving an injury or sickness. Thankfully, employment practice liability coverage is widely available to employers of all sizes and has softened with regard to pricing over the last decade.
The most common claim I see in terms of employment practice liability alleges violations filed with the U.S. Equal Employment Opportunity Commission (EEOC), which involves discrimination due to age, sex, race, religion or national origin. According to the EEOC’s website, Florida ranked second only to Texas in total filed charges for 2013 with 7,597 claims (www.eeoc. gov). Depending on the findings of the EEOC, civil lawsuits can follow, but an EEOC suit in itself can cost valuable time and dollars with regard to preparation and defense.
Another common claim is one filed under the Fair Labor Standards Act (FLSA), which governs things like minimum wage, overtime pay, recordkeeping and exempt vs. non-exempt employee status. As a result of the popularity of these claims, many insurers have started excluding these claims altogether from their policies, though some are still offering defense cost sublimits. If you carry employment practice liability, it is important to check your policy to see if FLSA/ wage and hour claims are covered. If not, I recommend checking with your agent to see what other options are available.
As I mentioned before, obtaining a quote for coverage is extremely easy. Some insurance companies are able to quote solely based on your address, number of employees and your industry type. Larger employers would be well served to complete an application and work with an agent familiar with the marketplace in order to create a full submission including your existing employee manual and an explanation for any past employment practices issues. Coverage for third-party claims is also available, so alleged discrimination or harassment of a vendor or customer can be addressed through these policies as well.
As I tell my clients, employment practice liability claims don’t necessarily require you to have done anything wrong. Sometimes, they are purely indicative of hiring the wrong person. Even the employer with the most sophisticated human resources department is susceptible to a nightmare employee.
Purchasing coverage should therefore not be perceived as an admission of wrongdoing but rather a means of pre-paying for a defense. Policyholders are often also given free access to employment law experts, who can assist in avoiding claims in the first place, as a part of their policy.
I recognize that with all of the exposures and business insurance products an employer is besieged with, it is easy to fall into a state of “insurance fatigue.” That said, the employment practice exposure grows exponentially as an employer grows. Please be sure to talk with an experienced insurance agent to be sure your exposures are properly addressed.