Author, Kevin Howard, CRIS, Account Executive, Construction Gorup, Rancho Mesa Insurance Services, Inc.
Insurance is often considered a necessary evil by business owners. It can represent a significant line item on a profit & loss statement rivaling the cost in some cases of payroll, material costs and rent. With deductibles that can range from $15,000-$25,000 per claim, why then would a business spend dollars on an insurance policy that is not required by either state law or part of any general contractor’s insurance specifications?
What does an EPLI policy cover?
Employment Practices Liability Insurance (EPLI) policies typically extend coverage to the following:
- Wrongful termination of an employee who alleges violation of their contract;
- Sexual harassment claims by one employee against another;
- Wage related claims by employees who allege denial of overtime pay or tips, or working “off the books." Note: Most carriers offer a defense only sub limit for this type of claim;
- Claims of unequal or unfair pay between employees performing the same job and having similar skills, education, seniority and responsibility;
- Discrimination claims based on age, race, gender or sexual orientation;
- Third Party. Example: Your employee out in the field of work upsets another subcontractor’s employee, a customer at their home, a student at a school enough to where they file a lawsuit against you.
Why do businesses resist purchasing EPLI?
Declining to purchase EPLI can stem from businesses feeling that they are not large enough for this type of claim to occur. Many owners have close relationships with their employees and never believe any of the above scenarios could occur within their organization. And yet, many more can assume that a General Liability policy would cover these types of potential claims when, in fact, most have specific EPLI exclusions. This type of thinking could result in losses that have severe financial consequences for your company. Let’s take a quick look at three common EPLI exposures facing the construction industry.
Common EPLI Claims in the Construction Industry
Rapid growth and layoffs are unique aspects of the construction industry that can cause the elimination of a specific position and/or termination. With these ebbs and flows, contractors unintentionally open themselves up to wrongful termination cases which can carry into discrimination charges, as well. It can also be common to see employees bring post-employment wage & hour claims, which center around improper overtime, breaks, etc. Lastly, contractors' work very often involves interaction and exposure to the public. This interaction can lead to comments, inferences, or specific actions that non-employees find offensive. Claims brought by these third parties are difficult to prove when the employer is unable to witness the events first-hand.
Light Bulb Moment
In these and other potential claim scenarios, employers without EPLI must outlay their own funds to find legal representation and fight the charges. Legal costs add up quickly regardless of the documentation an employer has kept on file and the conviction they have that an employee’s claim is frivolous. Defending yourself in today’s environment can become cost ineffective very quickly. Light bulb moments can occur when EPLI limits are unavailable because coverage is not in force and an owner is staring at a “balance sheet loss,” resulting in a six figure settlement.
Consult Your Broker for EPLI Options
At Rancho Mesa, as it relates to coverage for our clients, we often say "you would rather be looking at it than for it”. That is, you want to be looking at a policy that will respond to coverage than for one at the time of a loss. Take time to explore the nuances of employment practices liability insurance with a knowledgeable broker. Allow an expert to educate you on the real exposure to your company, ask to spreadsheet different policy forms, deductibles and limits in an effort to balance the annual premium with the potential impact of a large loss.
For more information about Employment Practices Liability Insurance, contact Rancho Mesa Insurance at (619) 937-0164.