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Your Small Business’s Guide to Employment Practices Liability Insurance (EPLI)

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In simple terms, workers’ compensation covers physical injuries and illnesses whereas EPLI is for claims that an employee’s rights have been violated.

Additionally, business owners are required to purchase workers’ compensation insurance for their employees. If a business employs one or more employees, workers’ comp is required under California Labor Code Section 3700.

EPLI, on the other hand, is not. This results in many business owners opting out of EPLI because they believe all issues with employees will be covered under workers’ comp; however, this is not the case.

Learn more in our full guide to worker’s comp for small business owners.

It’s important to note that EPLI is a type of professional liability insurance and provides coverage in entirely different situations than workers’ comp.

Let’s take a look at what EPLI typically covers.

What Does Employment Practices Liability Insurance Cover?

EPLI can cover lawsuits over employee allegations of:

  • Sexual harassment
  • Discrimination
  • Retaliation
  • Wrongful termination or demotion
  • Mismanagement of benefits
  • Defamation
  • Breach of employment contract
  • Negligent evaluation
  • Failure to employ or promote
  • Wrongful discipline
  • Deprivation of career opportunity, and
  • Wrongful infliction of emotional distress

What Isn’t Covered by EPLI?

As with any insurance policy, EPLI has some exclusions and limitations. Generally, EPLI doesn’t cover claims for:

  • Bodily injury
  • Intentional acts (assault, battery, criminal conduct), and
  • Privacy violations 

Additionally and perhaps most importantly, EPLI protections almost always exclude wage and hour claims or only provide limited coverage to include defense costs, not repayment of back wages.

Wage and hour-based claims include claims relating to:

  • Overtime
  • Minimum wage
  • Rest and meal periods, and
  • Bonuses

Why Your Small Business May Face an EPLI Claim

Approximately 3% of businesses with fewer than 50 employees purchase EPLI. Many small-business owners are unaware that EPLI coverage exists, or they decide that coverage is optional or too costly.

In addition, many businesses owners make the mistake of assuming they don’t need EPLI because:

  • All issues with employees will be covered under workers’ compensation insurance, and/or
  • Employees would never sue them or their business

However, both of these assumptions are false and can be costly mistakes for business owners to make.

Now, let’s discuss some situations in which a business owner may face an EPLI claim.

Do I Need Employment Practices Liability Insurance?

Any small-business owner with employees should consider investing in employment practices liability insurance. However, EPLI is especially important for industries with high rates of employee turnover.

Why? Small businesses are at higher risk of EPLI claims.

Small Businesses are at Higher Risk of EPLI Claims

While all businesses should invest in EPLI coverage, small businesses need this protection the most. Why? In general, smaller businesses face a greater risk of employment-related lawsuits for several reasons.

These reasons may include but are not limited to:

  • Small businesses may not have a designated human resources (HR) department
  • Small businesses may not have detailed records of employee performance and strict guidelines that govern the hiring and firing processes, and/or
  • Small businesses have a smaller staff and often closer relationships among the team, resulting in more emotional reactions when an employee is laid off or fired

What Happens If I Don’t Purchase Employment Practices Liability Insurance?

It’s wise to buy basic EPLI coverage if your business can afford it. Businesses that choose not to purchase EPLI face a range of risks.

For instance, the average U.S. company faces a 10.5% chance of having an employment claim filed against them. Further, the probability can increase to more than a 50% chance in some states, like California and New Mexico.

According to Nerdwallet, events including the #MeToo movement “and increased media attention to workplace discrimination have led to an increase in employee claims against all types of businesses.”

“The average claim takes 318 days to resolve and costs $160,000, so insurance can be critical to your business’s survival.”

Looking to Purchase Employment Practices Liability Insurance?

Small business owners already have a lot on their plates. They shouldn’t also have to worry about purchasing the correct employment practices liability insurance, too.

At Apex Risk & Insurance Services, we use The Apex Proven Process to learn about your business, strategize to assemble the right program for you, and use our deep industry and market knowledge to leverage the best pricing and coverage.

This leaves small business owners with more time to do what they do best: Run their business knowing that their company and employees are protected.
Check out our commercial insurance policies, then, read on to learn how to protect your business from cyberattacks (another big risk small businesses face!)

 Your Comprehensive Commercial Insurance Renewal Checklist

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Trust us – you don’t want to skip your annual commercial insurance renewal. Why? If your business has changed over the past year, you run the risk of potentially overpaying for coverage or leaving your business underinsured.

During the business insurance renewal process, business owners have the opportunity to work with their insurance agents to determine if their insurance policies are still providing the coverage they need at the best available price. 

We understand business owners have a lot on their plates and simply renewing their existing insurance policies is a tempting and common option. That’s why we’ve prepared a comprehensive commercial insurance renewal checklist – to make starting the process as simple as possible and let you do what you do best: run your business. Let’s dive in.

What is a Commercial Insurance Policy? 

A commercial insurance policy covers the business, its employees, and its owners. Commercial insurance protects businesses from losses that may occur as a result of normal business functions.  

Since there are a variety of situations that businesses and owners need to protect themselves from, there are multiple different types of commercial insurance. These forms of business insurance are often split into general liability, property, executive protection, and employment protection. 

What is an Insurance Renewal Process?

Insurance renewals occur at the end of the term of your policy. At this point, you can determine if you would like to renew the same policy with the same insurance carrier or if you would prefer to adjust your policy and/or carrier or negotiate terms.

Are Insurers Obligated to Offer a Renewal? 

Insurers are not legally obligated to offer a renewal of the same policy. In fact, insurers may receive a letter from their insurance provider stating that the company is not renewing one of your business insurance policies. Why does this happen?

In most cases, a non-renewal notice has more to do with the insurer than with you. For example, the company may wish to stop offering that form of insurance or provide coverage for companies within your industry. 

However, there are some cases in which non-renewals are specific to the business. For instance, your insurer may have concluded that you have incurred too many accidents or losses, have not maintained your property, or have failed to comply with its loss control recommendations. 

It is important to note that while insurers are not required to offer a renewal, they are required to provide a 60-day notice of non-renewal. 

Are Insurers Obligated to Notify Insureds of Changes in Coverage?

An insurer has an obligation under California law to call an insured’s attention to changes in their coverage. These changes may include, for example, more limitations or exclusions. 

When coverage is reduced upon renewal, a process often referred to as “skinning down” the policy, the insurer must provide adequate notice of the exclusion, limitation, or reduction. 

How Long Does Commercial Insurance Last? 

Business owners should review their commercial insurance policies for renewal every 12 months (or, more accurately, 12 months after they take out the insurance policy). One year is the standard duration of an insurance policy for most types of insurance.

What Questions Should You Ask Before Renewing Your Business Insurance?

To properly prepare for your business insurance renewal, ask yourself the following questions:

Has Your Business Moved to a New Location?

A new location likely means changes in your general liability insurance. These changes may include, for example, moving into a different commercial space, expanding to a new location, or opening an additional office. 

New locations may also mean a reduction in your insurance premiums. For instance, if the new location is smaller or includes enhanced safety features, such as a wired alarm system or sprinklers. 

Has Your Number of Employees Changed?

Staff changes suggest it is time to adjust your workers’ compensation policy. Remember: under California Labor Code Section 3700, if a business employs one or more employees, the business must provide workers’ compensation coverage for each employee. 

The insurance renewal process is the perfect opportunity for business owners to verify that they are carrying appropriate workers’ comp coverage for all their employees.

Find everything you need to know in our full guide to workers’ compensation insurance for small businesses.

Are You Offering Any New Goods or Services?

If your business is offering new goods or services, you may need to adjust your professional liability insurance. 

Does Your Business Have Cyber Security Coverage?

Cyber insurance, also called cyber security or cyber liability insurance, covers businesses against losses resulting from data breaches. This form of insurance primarily applies to businesses that run secure networks as part of their daily operations.

While this coverage is often included in professional liability or general liability policies, the renewal process is an excellent time for business owners to verify that they have adequate cybersecurity insurance since it is sometimes purchased as a standalone policy.

Read on to learn more about cyber insurance.

Have You Purchased New Equipment?

It is essential for business owners to ensure any new equipment is covered in their commercial insurance policy. Why? The cost of your business insurance is based on several factors, including the type and amount of equipment you own. 

Have You Purchased New Vehicles?

If you’ve bought or sold a business vehicle, added delivery services, or changed existing service areas, you may have to adjust your commercial auto insurance. 

Where Can I Find Commercial Insurance in San Diego?

Apex was founded to fill the service and consultative gap left by agency consolidations in the insurance marketplace. These consolidations have left customers who are used to a boutique service approach with no personal connection to their team.

Apex brings the high-touch service proposition back to San Diego businesses and beyond.

At Apex Risk & Insurance Services, we use the Apex Proven Process to learn about your business, strategize to assemble the right program for you, and use our deep industry and market knowledge to leverage the best pricing and coverage. 

This leaves small business owners with more time to do what they do best: Run their business knowing that their company and employees are protected.

Check out our commercial insurance policies, then, read on to learn what makes us different.