Litigation Inoculation

Insurance you may want to cover employee suits

No matter how carefully you try to protect yourself from employee lawsuits, the unexpected happens. That's where insurance comes in. Standard liability policies don't cover employee-related litigation. Nor do they cover problems arising from botched benefits administration. Rather, employment practices liability insurance (EPLI) can help pay for damages incurred as part of a lawsuit. Benefits missteps can be covered by a rider to your existing liability policy.

Employment practices liability insurance covers companies for the legal costs and damages associated with harassment, discrimination, or wrongful termination cases brought by current or former employees or job applicants. Any company with at least 15 employees—the size at which Title VII kicks in—and even some with fewer workers should have EPLI, says Richard Betterley, president of Betterley Risk Consultants, a Sterling (Mass.) insurance consultant. That's especially true if you operate in a plaintiff-friendly state such as California, or if you're covered by state or local anti-discrimination laws. Still, there are drawbacks. Many policies restrict which attorneys you can use to handle your case. And EPLI is pricey: Annual premiums for a $1 million policy with a $10,000 deductible on a 100-person company can range from $4,000 to $10,000, depending on the state and your company's rate of employee turnover. Insurers will also look at a company's internal employment policies, so solid anti-harassment rules, for example, can lower your premium. Shop around for the best price, and be sure that you understand exactly what the policy covers before you buy it. Some policies, for example, also cover suits by temporary or contract employees.

A rider attached to your standard liability policy may help cover missteps with the law known as COBRA, as well as administrative problems with benefits such as disability and life insurance. About $200 a year pays for a $500,000 in coverage with a $1,000 deductible.

Unfortunately, you won't find policies to protect against mistakes in figuring out who should get overtime pay or losses arising from unworkable noncompete agreements. All the more reason to avoid those two situations in the first place.

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