With concern rising about the potential claims that employers can face from seemingly routine matters such as hiring, promoting or terminating employees (let alone responding to allegations of sexual harassment or discrimination), a growing number of middle market companies are taking a closer look at their employment practices and policies. And with intense competition among insurance companies leading to attractive pricing, many are finding that employment practices liability insurance (EPLI) can be an affordable and important tool in alleviating their concerns.
"Dealing with personnel issues is an increasingly gray area, and more employers are looking for ways to protect themselves," says Peter Foster, an EPLI specialist with J&H Marsh & McLennan in Boston. "Executives are rightfully concerned with revenues, assets and continued growth, but it's also important to make sure that employment issues aren't lost in the shuffle."
An Added Bonus
Although coverage varies among insurance carriers, EPLI policies generally respond to wrongful termination, workplace discrimination, sexual harassment and similar claims brought by current and former employees, suppliers and customers. According to Mr. Foster, stand-alone EPLI coverage, available from only three insurers in 1994, is currently offered by 38 carriers, so policies are becoming broader and prices are coming down.
Along with providing a source of funds to defend such claims as well as to pay for any settlements or judgments an employer may face, an EPLI policy can be valuable because the underwriting process is likely to include an evaluation of a firm's existing employment practices.
Under an employment practices audit, a prequalified legal firm will review an employer's existing procedures and compliance with laws such as the Americans With Disabilities Act or the Civil Rights of Act of 1991 and suggest any needed improvements. In addition, the legal firm may provide handbooks with model hiring, performance review and termination practices, and may also be available for consultation services to help employers deal with specific situations.
"A program should offer an employer ongoing risk management, not just risk transfer," Mr. Foster says. "An underwriter can look at what a company is doing and offer lower premium rates because the carrier is going to pay out less down the road. For example, if an employer has to let someone go, they can receive advice about the best way to avoid a problem or at least mitigate some of the potential damage. …