Employment Practices Liability Insurance

Yes, it is common to extend coverage to claims made by third parties. An example of a third-party claim is where an employee makes a disparaging remark to a customer, who then sues the business owner for the damages. Many insurers include Third Party coverage automatically without an additional charge. Others do not and will include it. It is important to look at the details of your policy!

First, let me explain what we’re talking about when we say “Wage and Hour.” 

A Wage and Hour violation is defined on most policies as an actual or alleged violation of any federal, state or local statute or law governing payroll practices or policies. These are disputes that typically arise between employees and employers over things like overtime pay, on-call time, rest periods, minimum wage compensation, reimbursement of expenses, garnishments, or withholding of deductions. The argument is that the employer owes the employee more money than they actually paid.

No policy will actually pay wages that an employer owes its employees, but many policies will pay to defend against Wage and Hour allegations. This is an additional coverage that doesn’t come standard on the policy, so you have to add it – and pay for it – separately. It usually has its own separate set of limits (usually lower than that of the rest of the policy).

PAGA is sort of like an informal class action suit brought on by employees for labor code violations. So, think of it like a group of employees together make the same claim against the business at the same time. Whether a claim comes from a single employee, a PAGA suit, or a class action lawsuit has no bearing on whether the claim is covered or not. What is relevant is what the claim is about. If the PAGA suit alleged inadequate work conditions leading to a wrongful infliction of emotional distress, and the employer’s EPLI policy covers wrongful infliction of emotional distress, then the policy will pay to defend. So PAGA is just the method by which a claim is brought, which doesn’t affect coverage one way or another.

No, civil and criminal fines are not covered. When coverage applies to an EPLI policy, the only payments made are defense costs and the damages that result in a judgment. Occasionally you may come across a policy that will include some government imposed fine or penalty for some small amount, but as rule of thumb, do not depend on insurance to pay civil or criminal fines or penalties, ever.

Independent contractors are treated differently. A true independent contractor is not an employee, but a separate entity that provides services in and around a business’s operations. An independent contractor may directly facilitate a business’s operations, such as a drywaller acting as subcontractor doing work for a general contractor in a new construction project. They may also provide services around a business’ operations, such as a janitorial or IT services provider for an office-based business. Since they are not employees, the employer would not be covered if an independent contractor were to file a claim. Theoretically, they could, however, be considered a third party, and if the EPLI policy covers third parties, a claim made against the employer by the independent contractor could be covered.

The good news is that many EPLI insurers can offer coverage for independent contractors as an added option. It is important to note that the coverage may not be as broad as it would be if a true employee were filing the claim. 

Insurers vary in the way they handle ADA situations. If a disability discrimination suit is brought to the employer by one of its employees, as a result of an ADA violation, a typical EPLI policy will respond. And if a third party alleges discrimination, such as a restaurant refusing service because of a customer’s disability, a typical EPLI policy will also respond – if it includes third party coverage. Another situation that can occur is if a third party simply alleges an ADA code violation without claiming any loss. This is where coverage is less likely, but still possible. Some policies may pay defense costs only in an alleged ADA violation, while others may exclude anything ADA outright. Also, it is important to note that actual ADA violations that result in civil or criminal fines are not covered.

EPLI policies are based on the unique characteristics of the individual business applying for coverage. Insurance companies start with the size of the business using employee count, the industry the business is in, and the locations where employees perform work.

Insurers also underwrite based on risk management practices such as employee handbooks, harassment and discrimination policies and procedures, and other HR practices like hiring and firing.

Additionally, insurers base price on the applicant’s experience, such as how long they’ve been in business, whether they’ve had any claims in the past.

Lastly, the limits, additional coverages, and deductibles will all have a major impact on pricing.

These factors all have an impact on the price of a policy.

That being said here’s an example of a potential policy for an office-based financial services business based in California, with eight employees and no claims.

Example 1 - $500,000 Limit of Insurance // $35,000 Deductible

Example 2 - $1,000,000 Limit of Insurance // $35,000 Deductible