How does employment practices liability insurance work?


Employers are exposed to the risk of being sued by their current or prospective employees for a number of employment-related practices, such as discrimination, sexual harassment, etc. Such employment practices liability claims result in damage awards of hundreds of thousands of dollars every year.

Protecting Yourselves against Employment Liability Claims

A general commercial liability policy won't work, since it typically excludes employment-related liability. An employer should therefore either look for a special endorsement that addresses employment practice liability exposure to include in their commercial liability policy, or a separate coverage specifically designed for that purpose.

The Employment-Related Practices Liability Coverage

Under employment practices liability insurance, the provider agrees to cover any compensation that the insured has the legal responsibility to pay, if the latter has been found liable for committing any of the following employment-related offenses:

  • Any kind of harassment or abuse arising out of the employment relations;
  • Race, age or gender discrimination;
  • Defamation of character, invasion of privacy, libel and other employment-related personal injuries;
  • Breach of contract;
  • Unlawful termination of employment;
  • Failure to promote;
  • Wrongful refusal to hire;
  • Negligent supervision, etc.

Another characteristic of employment practices liability insurance is that it contains a "co-payment" clause which requires the insured employer to co-pay a certain percentage of the overall damages and defense costs. For instance, if the awarded damages plus the legal costs amount to $150,000 and the co-payment percentage is 10%, the insured will have to pay $15,000 into the awarded compensation.

There are a number of employment-related offenses that are specifically excluded under an employment practices liability policy:

  • Any intentionally malicious or inherently criminal acts;
  • Violation of employment-related laws;
  • Any offense which would be addressed by workers compensation laws;
  • Any situation that is the subject of contractual liability laws.
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