Employee Practices Liability Insurance
Employee Practices Liability Insurance Coverage is not part of your regular insurance package. It is special coverage, and must be specifically purchased. Sometimes, it comes with its own declarations page, which will set forth the event limit coverage, aggregate limit coverage, and any self-insured retention. Interestingly enough, for annual coverage of $100,000, and a self-insured retention of $2,500 per claim, a small business may pay as little as $40 for such coverage.
This type of insurance coverage is very complex. It should be closely read, because the coverage is subject to a number of exceptions and limitations. Equally important, the limits of liability in such insurance policies are “self consuming”. In short, every nickel that the insurance carrier pays out in the defense of the claim is deducted from the limits of insurance. For example, if a claim is brought and it costs $50,000 to defend that claim, then the limits of insurance are reduced by $50,000. Furthermore, if the claim is then settled for $50,000, the limits of your policy have been exhausted. Given the cost of defending such lawsuits, a business owner should very carefully choose the limits of such insurance. This is particularly true in industries where there is a higher incidence of claims, such as the restaurant industry.
Generally speaking, coverage is provided for Discrimination, Harassment, and/or Inappropriate Employment Conduct. Each of those terms is specifically defined within the policy, and potentially vary from carrier to carrier. You should read them carefully. Furthermore, this coverage (which consumer ten pages of detailed language) is subject to a great many exclusions and limitations. These exclusions and limitations may be included within the policy language itself, or in separate endorsements to the policy. Most importantly, these policies do not provide coverage for workers compensation claims or wage and hour claims.
It is rare that a business owner reads his or her insurance policy from end to end. We suggest, however, that it is time well spent, and may save you many thousands of dollars in the future. In any event, you should talk to your insurance broker about Employee Practices Liability Insurance.
