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Employers face potential employee lawsuits filed under the Civil Rights Act, Fair Labor Standards Act, ADA, FMLA and others. In addition, many state employment laws create a regulatory web that can snare even the savviest employer. No matter how careful employers are, they still can be sued.

Recognizing the risk, more employers are choosing to protect themselves with employment practices liability insurance (EPLI), which covers your organization if it’s hit with an employment lawsuit. But it’s important to know which coverage is right for you.

What's new  

Your employment risks are constantly growing. President Bush recently signed a new law that makes it illegal to discriminate against applicants or employees on the basis of their genetic test results. The law sounds like it won’t trigger many lawsuits, but that’s what proponents said about the FMLA.

Expect the employment law landscape to grow even more complex if voters elect a Democratic president to go along with the current Democratic Congress.

Changes to EPLI  

EPLI coverage provides a safety net for employers hit with large jury awards. But like the legal landscape, these policies are changing.

Older EPLI policies provided “occurrence” coverage, which covered the employer as long as the discriminatory act occurred during the policy period.

But newer policies usually include “claims made” coverage, meaning the policy covers the employer only for claims reported during the policy period.

This difference is critical if you are an employer that fears it may be sued for some action that has already happened. Employers in this situation are out of luck unless they can find a vanishing “occurrence” coverage policy.

How to buy EPLI 

If your organization applies for coverage, insurers look at your history and examine any potential lawsuits lurking in the distance. If the insurer spots a risky activity or policy, it will alert you and work on ways to limit liability.

To calculate your EPLI premium, insurers will look at your claims history, likelihood of pending lawsuits, company size, turnover rate and whether you have an HR department.

EPLI policies typically cover employment-related issues, such as discrimination and wrongful termination (see list below). But be aware that most policies exclude intentional conduct, such as assault, and actions taken under collective bargaining agreements and employment contracts.

Insurers and employers often bump heads over who represents the employer if a lawsuit lands on the employer’s desk. Some insurers insist on having their own attorneys represent the employer. Others let you use yours. Ask about this issue up front to avoid any confusion.

Finally, find out which costs are covered and what you can expect from the insurer if you’re sued. Once you understand the type of policy, obtain several quotes and use the questions in the box below to ensure you’re getting the best deal.

Examples of legal claims covered by EPLI policies

  • Discrimination
  • Sexual harassment
  • Wrongful termination
  • Breach of employment contract
  • Negligent supervision/hiring
  • Failure to employ/promote
  • Wrongful discipline
  • Infliction of emotional distress
  • Mismanagement of benefit plans

        Source: Insurance Information Institute

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