Facts to know about EPLI coverage

Businesses forced to lay off workers due to the coronavirus should prepare for potential wrongful termination lawsuits. Employment practices liability insurance can likely provide coverage if employees sue because they were fired for failing to fulfill work obligations because of COVID-19. Check with your insurance company’s claims department to find out if you’re covered.

In a claims-made policy, a claim is covered only if your policy is active both when the incident occurred and when the claim is filed. For example, your house painting business is forced to close, so you cancel your EPLI coverage. A few months later, a former employee sues you for discrimination, but since you no longer have an EPLI policy, the insurer likely won’t pay for lawsuit costs. Note that in some situations, you may be able to extend a policy beyond its original end date.

Most EPLI policies include a deductible, which is an amount that you pay out of pocket toward legal costs before an insurer contributes. Some policies limit coverage during acquisitions or major staff reductions. Employment dispute lawsuits can be expensive, so keep that in mind when choosing what an EPLI policy covers.

Some EPLI policies stipulate that the insurance company will choose your attorney if a claim is filed, usually because the insurer wants a lawyer who has expertise with relevant cases.

Small businesses can often bundle employment practices liability insurance with directors and officers insurance, another type of management liability insurance. D&O protects a business’s board members and officers against lawsuits over decisions they made on behalf of the company that resulted in financial loss.

Together, these two types of management liability insurance provide a broad base of protection against liabilities related to hiring and firing, employee rights, investment decisions, and employee benefits. The bundle usually costs less than purchasing each policy separately.