Insurance Best Practices

Harassment Insurance
Nothing Frivolous About It
By David R. Carothers, CIC
Published: June / July 2008

In today’s increasingly litigious society small businesses must take proactive measures to guard the assets they have worked so hard to accumulate. Harassment accusations can be a distraction at the very least and oftentimes evolve into drawn out, capital draining legal battles. While there is no substitute for having good policies and procedures in place, there are insurance products available to protect businesses and their owners should their Human Resources procedures fail.

Employment-Related Practices Liability Insurance (EPLI), which covers a variety of employment related perils, is offered by agents in a variety of forms. It is important to be able to distinguish what is best for you based on the size and complexity of your business, policies and procedures you have in place, and appetite for risk. For example, if you are a 20 employee call center, your exposure may not be as significant as a retail operation of the same size. Smaller companies with fewer employees are not always less susceptible to suit. Insurance carriers rate premiums based on turnover, termination history, layoffs/consolidations/mergers/acquisitions, salary ranges, losses/incidents/hearings, and basic risk management practices. Over the years the pricing has softened to the point that it makes sense for employers of all sizes to consider this as part of their total risk management program. Because the application and underwriting process is very detailed, insurance carriers are able to provide quotations for multiple limits, deductible levels and coverage lines.

Many carriers will provide “wrap” policies which will also include Directors and Officers Coverage, Fiduciary Liability, Crime and some Internet Liability coverage. These policies can be written so that each line has its own limit, or they can have one shared limit for all lines. In addition to the flexibility of the policies, carriers offer great risk control services at no additional cost. They are able to review employee handbooks, rules and regulations, and their websites have a plethora of resources available to aid with many Human Resource issues. When shopping for EPLI, there are twelve coverage areas that the policy should address at a minimum:

• Wrongful dismissal, discharge or termination

• Harassment

• Discrimination based on A.D.A

• Retaliation

• Employment-related misrepresentation to an employee or applicant for employment

• Employment-related libel, slander, humiliation, defamation or invasion of privacy

• Wrongful failure to pay or promote

• Wrongful deprivation of career opportunity, wrongful demotion or negligent employee evaluation

• Wrongful discipline

• Failure to grant tenure

• Failure to provide or consistently enforce corporate policies and procedures relative to employment practices violations

• Violation of an individual’s civil rights relating to any of the aforementioned

Although there are some commercial insurance policies that provide an extremely limited amount of EPLI, as a rule it is typically excluded from coverage. Other questions to be asked include: Is there coverage for third parties? Does my policy cover defense costs within the limits of insurance or are they paid in addition to the limits? Who is covered as an employee as defined in the policy language? Do claims need to be reported in writing or will verbal claims be covered? Does the policy have a hammer clause and if so, what is the penalty? When must claims be reported? Can I purchase coverage for prior acts?

With all of the information set forth, you are probably more confused than you were when you started reading. The good news is there are plenty of well-qualified insurance agents to help you decipher what is best for your company. Insurance contracts and underwriting guidelines are constantly evolving. Good agents stay ahead of the curve and are able to guide you through the application process from beginning to end. If you have not had a conversation about EPLI with your agent, there is no time better than today.

David R. Carothers, CIC is an Enterprise Advisor with Baldwin Connelly serving the metropolitan Tampa Bay Area where he represents clients of all sizes. He has Bachelor of Science degrees in Management and Marketing from Birmingham Southern College. He also holds the Certified Insurance Counselor designation from the National Alliance. You can reach David at drcarothers@baldwinconnelly.com.

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