Employment practices liability insurance is a coverage that most small businesses think they don't need. Like the driver who realizes they should have buckled their seatbelt after an accident, the first clue that they're mistaken often comes in the form of an Equal Employment Opportunity Commission (EEOC) complaint. Worse yet, the next thing a business will probably learn when they show up on their agent's doorstep is that it is too late to get EPLI coverage to cover a lawsuit that started as an EEOC matter.

This situation also creates an errors & omissions exposure for an agency because it is common for customers to complain, “You failed to offer this coverage to me!"

Business owners policies will sometimes offer an EPLI endorsement but those types of endorsements often have sublimits, such as $100,000 for defense and any indemnity payments. Usually, broader EPLI coverage can also be obtained as an endorsement to the company's directors & omissions policy or as a standalone policy, the latter of which is normally the most expensive option.

First-party EPLI claims are made by employees against the employer. Claims can include wrongful termination or EEOC claims based on retaliation, sexual harassment, discrimination, denial of sick leave or a denial of an accommodation or modified duty.

If an employer has non-salaried, non-exempt employees—with some exceptions such as seasonal employees, farmworkers and babysitters—and meets the gross sales threshold, then that employer could have exposure to claims under the Fair Labor Standards ACT (FLSA). This act established minimum wage, overtime pay, recordkeeping, such as hours and days worked, and child labor standards.

EPLI carriers often exclude or provide a sublimit for wage and hour claims, such as claims by non-salaried employees regarding amounts they were paid based on the hours they worked. While carriers can differ in their definition of a wage and hour claim, exclusions and endorsements often include any pay which the employee states was earned and not paid, including overtime, commission, vacation, sick, severance and on-call time. Disputes often involve improper payroll deductions, not paying for breaks or misclassification of employee status.

These types of claims are often brought as class-action lawsuits and therefore can be very costly to defend. For this reason, it is a good idea for an agent to make sure that the client knows about the wage and hour claim exclusion or endorsement.

What employers often don't realize is that discrimination and harassment claims brought by third parties against their employees are not covered by primary EPLI or commercial general liability policies. If an employer has employees who deal with the public as customers or vendors, there is going to be a potential exposure to third-party EPLI claims. 

Third-party EPLI claims occur when a customer or vendor makes a claim against the employer alleging that the employee discriminated against them based on nationality, sex, disability, age, race, religion, pregnancy or sexual orientation; or when the customer or vendor makes a claim versus the employer that the employee sexually harassed—or otherwise harassed—them.

Other types of third-party claims allege violations of the Americans with Disabilities Act (ADA) or the Federal Housing Act (FHA). For example, if your client is a retail store and they have at least 15 employees, then they can be exposed to claims under the ADA alleging that they did not make their facility accessible to people in wheelchairs or provide other disability accommodations.

In recent years, claims and lawsuits, including several class actions, were filed alleging that a company's website was not compliant with the ADA because they were not accessible to persons with visual impairments.

ADA website claims are also being filed under the Fair Housing Act (FHA). The federal law says that it is unlawful to discriminate against any person in the terms, conditions or privileges of sale or rental of a dwelling “or in the provision of services or facilities in connection with such dwelling." Many insurance agents have received these non-compliant website claims arguing that placement of insurance for these dwellings constitutes the provision of services in connection with that dwelling.

Employers—including insurance agencies—don't need 15 employees to be exposed to these types of claims. Further, they are generally not covered under CGL policies and may not be covered under EPLI endorsements or standalone policies without specific third-party EPLI coverage.

The right EPLI coverage is a bit like wearing a seatbelt. Chances are you won't need it. But if you do, it's better to buckle up before an accident.

Caryn Mahoney is an assistant vice president and claims specialist with Swiss Re Corporate Solutions and works out of the Chicago office. Insurance products are underwritten by Westport Insurance Corporation, Kansas City, Missouri, a member of Swiss Re Corporate Solutions. 

This article is intended to be used for general informational purposes only and is not to be relied upon or used for any particular purpose. Swiss Re shall not be held responsible in any way for, and specifically disclaims any liability arising out of or in any way connected to, reliance on or use of any of the information contained or referenced in this article. The information contained or referenced in this article is not intended to constitute and should not be considered legal, accounting or professional advice, nor shall it serve as a substitute for the recipient obtaining such advice. The views expressed in this article do not necessarily represent the views of the Swiss Re Group (“Swiss Re") and/or its subsidiaries and/or management and/or shareholders.