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Consider these stats: More than one-fourth of civil lawsuits filed last year were employment related, and the average jury award in employment cases is approaching a half-million dollars.

That's why employers of all sizes are beginning to view employment practices liability insurance (EPLI) as more of a must-have. EPLI covers employment-related judgments against your company, plus the costs of defending the lawsuit.

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

Premium costs rising

Most EPLI policies are sold as stand-alone policies, not as add-ons to existing business policies. Several factors dictate your rates, such as your employee total, turnover ratio (especially firings and layoffs), whether your company has an HR department, and its history of harassment or bias lawsuits.

Industry estimates place the average premium for a policy covering a 100-employee company with a liability limit of $1 million at about $4,000 per year.

But as the need for EPLI becomes clearer, insurers are raising premiums and deductibles while tightening qualification. Many insurers will hike premiums by 15 percent to 50 percent this year, according to insurance research firm Betterley Risk Consultants, Inc.

The good news: Insurers eliminated much of the red tape once associated with EPLI policies. Still, the wide variety of coverages being offered means you'd better shop around. While only five EPLI carriers existed a decade ago, that number tops 60 today. And one EPLI policy can differ widely from another, especially de-pending on the industry.

6 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 which are yet to become known or filed. You want your policy to include both.

2. What's covered? EPLI policies can vary greatly in what types of claims and damages are covered. Make sure your policy clearly defines a legitimate claim. Among claims frequently excluded are those stemming from criminal acts, class actions and insolvency.

Punitive damage judgments often aren't covered by EPLI policies. 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.

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 law-yer? Some insurance companies 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.

6. Who determines if a case is settled? Many companies believe that settling cases, even nuisance suits, can encourage other lawsuits. You should know whether you, not the insurance company or law firm, have the right to veto a settlement.

? Online resources: EPLI

For more advice or quotes on employment practices liability insurance, contact your current business insurer, your chamber of commerce or visit these sites: 

  • www.iii.org/individuals/business/optional/epli 
  • www.betterley.com/adobe/EPLI2002_nt.pdf
  • www.insurancefinder.com


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