November 2007

COMMON MISCONCEPTIONS CAUSING BUSINESS OWNERS NOT TO PURCHASE EPLI

In 2005, almost 80,000 charges of employment discrimination were filed with the Equal Employment Opportunity Commission alone. Add to this the thousands of lawsuits brought under other federal, state and local employment laws, and it becomes apparent that discrimination suits are one of the most common types heard in courts.

In spite of this emerging trend, many eligible companies resist purchasing EPLI. What would influence a business to remain exposed to potentially devastating legal action when they can purchase protection? The answer to that question lies in several common misconceptions about the nature of discrimination suits.

First, many business owners believe their company is somehow immune to discrimination litigation.

Nothing could be further from the truth. In fact, many smaller companies do not have the human resources policies and procedures in place that would protect them from employment practices litigation. Consequently, this increases their exposure, making them well suited for EPLI coverage.

The second commonly held misconception is that if sued for discrimination, the business can absorb the cost of a lawsuit.

Legal actions can be costly; money is just the tip of the iceberg. Management and professional staff members may be asked to testify, give dispositions, or gather information regarding the case. Instead of focusing on business operations, their attention is being diverted elsewhere and this can have a significant negative effect on the bottom line. Also, once the lawsuit is made public, the publicity can cause present customers to stop doing business with the firm and influence potential customers to take their business to the company’s competitors.

Court awards in a discrimination suit can be extremely large. In September 2005, Wachovia Corporation settled a suit for alleged compensation discrimination against more than 2,000 current and former female employees by agreeing to pay $5.5 million. In another 2005 case, Consolidated Freightways agreed to pay approximately $3 million to settle a racial harassment case involving 12 African-American dockworkers employed at one of their facilities. In February 2004, United Airlines was ordered to pay $36.5 million to settle a sex discrimination suit brought by 13 former flight attendants.

The last misconception has to do with business owners not fully understanding the protection offered by their current coverage.

They may believe they’re already covered for employment-related risks. However, most Business Owner Policies, Workers Compensation, General Liability, and Professional Liability policies specifically exclude these types of exposures. Even if an employer takes every precaution to prevent discrimination, legal action may still result. That’s why it is so important to have EPLI insurance. It protects a company against many kinds of employee lawsuits, including:

• Sexual harassment
• Discrimination
• Wrongful termination
• Breach of employment contract
• Negligent evaluation
• Failure to employ or promote
• Wrongful discipline
• Deprivation of career opportunity
• Wrongful infliction of emotional distress
• Mismanagement of employee benefit plans

EPLI will reimburse your company for the cost of defending a lawsuit in court, whether you win or lose. It also covers judgments and settlements. Policies generally do not pay for punitive damages or civil or criminal fines. Liabilities covered by other insurance policies are excluded from coverage under EPLI policies. The cost of EPLI coverage depends on the type of business, the number of people employed and various risk factors such as whether the company has been sued over employment practices in the past.