Employment Practices Liability Insurance

Employment Practices Liability Insurance protects an employer from claims made by current, former or potential employees. This type of coverage insures business owners against claims of employee discrimination based on age, sex, race, disability, religion or other causes. Employment Practices Liability Insurance also covers employers against suits stemming from wrongful termination, sexual harassment, and other alleged violations of employment law. These policies cover the business entity as well as its executives, directors and officers.Although employers are not legally required to carry Employment Practices Liability Insurance policies, such coverage is often recommended for business owners to protect themselves from potential claims. Investors may also inquire as to the status of a company’s employee liability protection before making an investment in that firm. The insurance policy also protects investors from claims against them for actions the company takes when dealing with employees.

The purpose of Employment Practices Liability Insurance is to insulate business owners, managers and directors from claims filed against them due to inappropriate behavior or miscommunication with employees. For instance, if a manager tells an offensive joke at a meeting, this behavior opens up the company to legal liability for creating an inhospitable work environment. Although the suit may be later found to be without merit and the case dismissed, the employer still must pay its for its legal defense in the event of a civil lawsuit.

Employers can purchase Employment Practices Liability Insurance as a stand-alone policy or as part of an overall management liability package policy. While some smaller firms may hesitate to incur the cost of an additional insurance premium, the costs of mounting a legal defense and paying off a potential verdict or settlement are often much higher. When a policyholder files a claim on its Employment Practices Liability Insurance policy, the limits on that policy will shrink when the insurer pays out a claim on the company’s legal defense costs.