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Entity Employee Practices Liability Insurance- Why do businesses need it?

 

We are aware that D&O insurance policies are intended to protect directors and officers of a company against personal liability claims arising out of their financial decisions. But claims related to workplace practices such as discrimination, unfair termination, sexual harassment, breach of employment contract or unfair termination are not covered under a standard D&O policy. For such claims it is important to take the Entity Employee practices liability insurance (EPLI) extension under the D&0 policy.

 

Wrong employment practices can expose the business or organization to litigation claims from employees. The EPLI coverage can help companies manage any such litigation they may face from employees. This coverage in the D&O policy is important for risk management.

 

Let us look into the details of the EPLI exclusion in D&O policies in this blog.

 

What does the EPLI exclusion cover?

The EPLI cover provides businesses protection against the financial costs rising out of lawsuits initiated by employees. The cost of legal fees and settlements can be huge and can create significant financial loss but the EPLI cover can take care of this aspect.

 

In order to understand the advantages of an EPLI extension let us look at an example. An employee accused his organization of wrongful termination and threatened to file a case against the company for breach of the employment contract. The employee was determined to bring the company to court. The organization was not worried about paying the claim amount. The company had taken an EPLI coverage which would cover the defense costs and any court rewards. 

 

The EPLI exclusion in the D&O policy covers claims made by employees based on: 

  • Discrimination: Discrimination based on religion, race, gender etc.
  • Wrongful termination: Termination that violates work contract or as a result of retaliatory action against the employee.
  • Harassment: Sexual harassment or any other type of harassment.
  • Retaliation: Punitive action on employees due to reporting of any harassment or discrimination in the workplace.
  • Wage and hour disputes: Employee claims related to lack of pay for overtime, violation of wage laws etc.
  • Breach of employment contracts: Claims related to failure to promote or violation of employment contracts.
  • Privacy invasion: Claims related to violation of privacy through background checks or unwarranted employee monitoring. 

 

In many cases the EPLI extension has to be bought by paying a small premium amount if it has to be included in the D&O policy. With this extension, any employee practices liability claim can be covered up to a certain percentage of the sum insured as part of the D&O policy.

However the EPLI extension is part of a claims-made policy which means that it will cover only those claims that are made during the policy period.

Whenever there is a claim, the business must notify the insurance company who will then assign a person to investigate the claim and ascertain how far the allegations are true.

Benefits of having the EPLI extension

 

The EPLI extension in the D&O policy provides various advantages to organizations. These include:

  • Protection against lawsuits related to employment.
  • Sense of security with the knowledge that the directors and offices in the company can make decisions with better confidence knowing they are covered for EPLI claims.
  • D&O policies with an EPLI extension help to attract talent for top management positions because it highlights the company’s commitment to protecting its directors and officers from any litigation that will damage their reputation.

 

The EPLI cover can also have the Entity exclusion cover. The Entity EPLI cover provides coverage in case the employee sues the company and not the directors or officers in the company for violation of any employee practices.

 

Difference between EPLI and workmen compensation insurance

 

There is often confusion between EPLI and workmen compensation insurance policy. Both are different. Workmen compensation policy takes care of employees who have suffered injuries related to the job or occupation due to workplace conditions. The policy provides both the employer and the employer financial coverage related to medical expenses for treatment of injuries or illnesses due to workplace conditions. The policy provides cover for lost wages, cost of rehabilitation and benefits for dependents of employees who have died while on the job. 

 

The workmen compensation policy is a requirement for businesses willing to provide cover for their employees while the EPLI extension is aimed at providing cover to the employer against legal claims made by employees. However both provide protection to businesses from financial losses.

 

Businesses considering buying an EPLI extension as part of the D&O policy can take the advice of an insurance broker. They will give suggestions on the D&O policy with appropriate add-ons based on the risks the business can face.

 

We at Zen Insurance Brokers assist in choosing an insurance policy with clauses suited to your requirements. Choose your insurance policy wisely. Get in touch with us for any assistance.

 

Disclaimer:

Zen Insurance Brokers is an IRDAI registered broker which facilitates quick and adequate insurance broking services. We deal with only regulator approved products of insurers. We do not underwrite the products.

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