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Issue: Employment practice liability insurance (EPLI) covers you from employee lawsuit judgments.

Benefit/risk: The jump in employee lawsuits is making EPLI a nearly must-have; so premiums are rising.

Action: Shop around. More insurers offer EPLI today, which means a wide variety on policies and quality.

The risk is real: Even if you draft airtight employment policies, an employee could sue you tomorrow ... and a jury may believe his story. That's why more companies are adding employment practices liability insurance (EPLI).

EPLI covers judgments relating to sexual harassment, discrimination, wrongful termination and other such employee wrongdoings.

Among the factors that affect your rate: number of employees, turnover ratio (especially the number of involuntary terminations), whether your company has an HR department and your company's history of employment-related lawsuits.

A side benefit of EPLI: It can cut the potential for workplace harassment and discrimination. That's because insurers typically review your company to check for possible liability before they issue a policy. And since insurers hate risk, they'll recommend changes to reduce your exposure to lawsuits.

Here are six questions to ask when pricing EPLI policies:

  1. Does the policy cover yet-to-be-filed claims? While "claims-made" policies cover claims made during the policy period, so-called "prior-acts" coverage offers protection for claims related to problems that occurred before the policy took effect but that are yet to become known or filed. You want your policy to include both.
  2. What's covered? EPLI policies can vary greatly in the types of claims and damages covered. Make sure your policy clearly defines a legitimate claim. Among claims frequently excluded are those stemming from criminal acts, class actions and insolvency.  Also, EPLI policies often don't cover punitive-damage judgments. Even if they were covered, you still must make sure your state allows EPLI insurance to cover punitive damages. California, for example, prevents such coverage. Also, make sure your policy covers cases brought by administrative agencies, like the EEOC or a state agency.
  3. Who's covered? What if a manager or supervisor is named personally in a lawsuit? Will he be covered? Many insurers extend coverage to corporate entities, directors, officers and other employees. Some offer coverage for discrimination and sexual harassment claims brought by third parties, such as customers and clients.
  4. Can you pick your own lawyer? Some insurers will allow it, as long as you obtain the insurer's OK before buying the policy. Others provide a panel of law firms from which you must choose. Still others simply assign a lawyer. If you're required to choose counsel from a panel, ask the insurance company what criteria it uses to select the attorneys and ask which ones specialize in employment law.
  5. Which defense costs are covered? In addition to attorney fees, will the covered costs include expert witnesses, jury consultants and other specialists who may be necessary to assist in a proper defense? Many cases are sent to mediation before trial. Find out if those costs are covered, as well.
  6. Who determines if a case is settled? You should know whether you, not the insurance company or law firm, have the right to veto a settlement.

Note: For more advice or quotes on EPLI, contact your current business insurer, your chamber of commerce or visit these sites:

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