What is Employment Practices Liability Insurance (EPLI)?
CPA firms obtain EPLI to help safeguard their business when there is an allegation resulting from discrimination, harassment, or another type of wrongful occurrence in the course of employment that is in violation of federal, state or local law, common or statuary.
Why should a professional services firm consider buying an EPLI policy?
The AICPA recommends that Employment Practices Liability insurance be a part of a CPA firm’s insurance portfolio.
In addition to helping safeguard a firm’s assets, some policies offer risk management and educational services for employment practices. Insurers now provide loss prevention guidelines in written material and live seminars. Some plans provide guidelines for routine employment practices, including hiring, investigating complaints, establishing harassment policies, downsizing rules, oversight of possible discrimination, drafting of employment guides, and conducting employee and management employment practices seminars.
In recent years, the cost of EPLI coverage has dropped dramatically, with insurers tailoring policies for small-to-mid sized firms. These new pricing structures are truly affordable, especially when you consider the average cost of defending an EPL claim is $50,000, plus lost time, damage to reputation and high stress surrounding a claim.
What types of claims are specifically covered under EPLI?
Employment practices liability insurance covers three general areas: sexual harassment and hostile work environment claims; all classes of discrimination (sex, race, age, religion, nationality, family, disability and pay, etc.); and wrongful discharge cases due to reengineering, downsizing, and mergers and acquisitions.
Are CPA firms a vulnerable class for claims?
Yes. CPA firms performing professional services are highly vulnerable to employment practices liability claims. The intense work and lengthy hours typical in these types of firms can create an atmosphere ripe for hostile work environment claims. Employment discrimination, wrongful discharge, and sexual harassment are prevalent claims for professional services firms.
What are some examples of claims against this class of firms?
Here are three claim scenarios against this class of firm:
Case 1: In a case tried in Chicago, a partner in a small professional services firm was accused of making sexual advances against a young female employee. The partner, who was married with a family, denied any sexual contact whatsoever. The jury, siding with the plaintiff, awarded a multi-million dollar judgment, which bankrupted the partnership.
Case 2: A partnership failed to promote a minority employee to partner. The employee claimed the decision was based on race; the partnership said the decision was based solely on merit. The jury awarded the plaintiff over $3 million.
Case 3: A female partner was voted out of a partnership for lack of productivity after she had a child.
These examples show that the causes of employment practices liability actions vary.
These claim scenarios may not be typical, and a same or similar outcome is not guaranteed. They are intended for informational purposes.
Doesn't professional liability insurance cover employment-related claims?
Typically, no. Most professional liability policies include an Insured vs. Insured exclusion precluding claims by employees against employers and partner/owners against partner/owners. These types of claims are excluded under the definition of professional services because employees are not clients and they’re not receiving covered "professional services." There is often a specific Employment Practices exclusion in a professional liability policy.
Many business owners carry a Business Office Policy (BOP) with Comprehensive General Liability (CGL) Coverage. Doesn't that cover employment-related cases?
Typically, no. It should not be considered standard that BOP and CGL policies cover employment-related issues. Even with these policies in place, a firm should consider the following factors when evaluating its potential exposure:
First, these policies are written on an “occurrence” basis with the intention to insure a particular event. This occurrence requirement raises the issue of whether an employment-related case is a sudden event, which would be covered, or a continuous exposure to conditions, which may not be covered.
Secondly, BOP and CGL policies require losses to result from an unintended, unpredictable or fortuitous event. Employment-related incidents often do not occur accidentally but rather happen intentionally. While BOP and CGL policies cover bodily injury, humiliation and mental anguish typically are not included in the definition of bodily injury. Since most EPL claims involve injuries that are not physical, these types of claims are usually excluded.
Most importantly, many BOPs and CGLs now have a specific Employment-related Practices Exclusion "for claims arising out of or in the course of employment." Workers’ Compensation policies generally treat work-related claims as Bodily Injury and do not address intangible emotional distress claims from employment practices claims. Insurers will often raise "coverage" issues when presented with employment-related claims on non-Employment Practices Liability Insurance policies. An insured may have to first seek a coverage decision before addressing the merits of the employment-related claim.
This is why it’s good practice to obtain separate EPLI coverage for employment-related exposures.
In addition to potential suits from employees, firms may experience claims of discrimination from their clients. Do any policies cover this type of complaint?
Yes. Some EPLI policies provide third-party coverage. This feature specifically covers liability for discrimination and sexual harassment claims by clients, vendors or other non-employees.
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