Introduction to Employment Practices Liability Insurance (EPLI)

Employment Practices Liability Insurance, often shortened to EPLI ("ep-lee"), covers lawsuits made against a business for employment-related wrongful acts. EPLI policy language is highly variable, but all function in the same manner. EPLI policies can be written for almost any business, as long as it has at least one employee.

Employment Practices Liability Insurance covers businesses for allegations of wrongful acts arising from any part of the employment process—from interviewing to post-firing. The term ‘wrongful acts’ is a catch-all for actions that have been made illegal by various employment laws, such as the Federal Whistleblower Protection Act, the Family and Medical Leave Act, the Civil Rights Act of 1991, and the Americans with Disabilities Act. There are seemingly endless possibilities for an employment-related lawsuit, but the following list outlines a few basic examples:

• During the application process, a prospective employee may sue if they don’t get the job, claiming discrimination due to their physical handicaps, race, religion, gender, or sexual identity.
• During their employment, an employee might file suit claiming that they were sexually harassed.
• An employee may sue for invasion of privacy by their employer.
• An employee could claim that they were discriminated against because they weren’t selected for a career-advancing assignment or opportunity.
• An employee can sue if they feel like they aren’t being paid a fair wage, or if they haven’t been promoted.
• After the firing of an employee, the business could be sued for wrongful termination.
• A former employee could sue if they believe they were fired because they were a ‘whistle blower’, claiming that they were fired in retaliation.
• A former employee could sue for slander or defamation if they believe their former employer is giving an unjust review of them to other employers.

 How does the EPLI policy work?

The EPLI policy was designed to defend businesses that make employment-related mistakes. So when an employment-related suit is brought against a business, the EPLI steps in and covers the defense costs. It will also pay the settlement if the business is deemed guilty. Note that some carriers’ policies will provide the legal defense themselves, and other carriers’ policies will only reimburse the insured for the defense and settlement costs. Also, many policies exclude certain scenarios and specific claims. Careful policy selection is critical, and consulting your agent is highly recommended.

Who needs an EPLI policy?

Potentially any employer could be sued for an employment related offense, even if they only have a single employee. However, the larger and more diverse the employee base is, the more likely an employment practices claim will arise. Also, publicly traded companies will pay more than private companies. 

The premium for an EPLI policy is determined by the number of employees, the HR practices and precautions taken by the business, and the industry the business is in. Businesses can control their premium by managing their employee turnover rate and effectively handling complaints and accommodation requests.

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How to Find Insurance for Your New Business

Entrepreneurship is at the heart of the American Dream, and has led to many worldwide companies—McDonald’s, Coca-Cola, and Apple, just to name a few! The freedom and empowerment of owning your own business can be very fulfilling, but it takes a lot of work to get your new venture up and running. You’ll be facing plenty of ‘red tape’, along with making a business plan, finding a location, finding funding, and much more. Once you get most of that figured out, you’ll need to line up your insurance before you can open your doors for business.

Most first-time entrepreneurs have never dealt with anything more than Homeowner’s and Automobile insurance before. The transition from personal lines to commercial lines can be a bit rough—commercial insurance is a huge sector with varying policy language, scores of different coverages, and new exceptions and exclusions that you’ll never see on a personal lines policy. These differences make sense since businesses inherently deal with more risk and operate in a very different manner than your average homeowner. Even though it’s different than what you’re used to, commercial insurance still serves the same basic function—keeping you safe. Commercial insurance just expands the coverage you’ll be receiving, so both you and your business are safe!

Once you have figured out where your business is going to be located, whether or not you’ll have employees, and how you’re going to deliver your product/provide your service, you should contact an independent agent to see what your new business’s insurance options are. Contacting an independent agent will allow for multiple quotes from a single agent, saving you valuable time. When you meet with the agent, bring along the following information to increase the quote’s accuracy: square footage of your rented/purchased business space, estimated gross revenue for the first year, your resume showing pertinent experience, and your business plan (also, if you’re going to have employees, bring along the number of part time and full time employees you’ll have, and an estimated gross payroll for each). Also make sure to discuss exactly what your new business will be doing, where you will be doing it, and how you’ll be doing it. Underwriters love information, so the more details you can share about yourself and the processes your business will go through to perform your service/deliver your product, the better your premium will be!  

With that information, the agent should be able to get you an estimated premium for one year’s worth of coverage. This premium will most likely be higher than the average premium for other businesses in the industry, as you do not have any claim history yet. The agent should also discuss with you any additional coverages you’ll need that you might not have thought of or even known that you would need.

Here’s a brief list of coverages you will likely see:

General Liability: To cover slips, trips, falls, personal liability, and property damage caused by you, your business, your employees, and your premises. For contractors, it also covers any damage done by your completed work. All businesses need this coverage.

Professional Liability: For any job that requires a license, you’ll typically need to have Professional Liability (also known as Errors & Omissions insurance). Other occupations with high levels of risk may need Professional Liability as well.

Property: Commercial property forms will cover your building and your business personal property. It will also cover your business’s detached signs and will have options and policy language exclusive to commercial lines.

Business Income: After a covered loss, your business may not be able to function, but bills will still need to be paid. Business Income will pay you your expected net income while your business is out of operation.

Workers’Compensation: Any business with at least one employee is legally required to have Workers’ Compensation, even if your only employee is a family member and/or the employee works part-time.

Once you receive your quote(s), you may want to adjust your business plan to reflect the exact insurance expense you’ll be incurring, and adjust the rest of your plan accordingly. You may also want to look into limiting or adjusting some of your business’s products or services to reduce your risk, and thus reducing your premium. Discussing premium-saving options with the insurance agent is highly recommended. Risk reduction is very easy to implement before your business starts, but can be nearly impossible to do once it is in operation!

Entrepreneurship can be very challenging, but it can also be very rewarding. If you’ve decided to follow the entrepreneurial path, make sure you partner with an agent that has experience with start-ups. Also make sure that the agent is willing to work with you on developing best practices to reduce risk and keep your business claim-free and generating revenue!

Note from the Author (Nov. 14, 2014): After two years of work, we've entirely redesigned our website! Using SquareSpace, we were able to import this blog and we are continuing our blog there. To find the current version of this article and our new articles, click HERE.

Business Income & Extra Expense

A comprehensive insurance program should cover your various property and liability exposures, but should also keep your business afloat while you rebuild after a loss. Business Income and Extra Expense are coverages used to pay the insured after a loss, keeping the money-flow moving as if the claim never happened.

Business Income is a coverage that reimburses a business for reduced or completely lost income due to a physical loss to their building/premises due to a covered peril. An easy example is a bakery burning down. While the building is being rebuilt, the bakery cannot operate. The loss of income is substantial, as it may take up to a year to finish the new building. During that time, the bakery would need to have Business Income coverage to receive any sort of income while the bakery is waiting on the new building. This coverage is particularly useful for businesses that still have loans and liens on their property that they would still be required to pay or other contractual expenses that they must pay. The Business Income coverage amount that a business would receive is a ‘net income’, however. If you are receiving payments through Business Income, you won’t receive any reimbursement for fees and expenses that you won’t be incurring while the business is down (such as the cost of the dough, in the bakery example). Business Income coverage is usually subject to a total limit of payments, a time limit, or both. Also, Business Income coverage alone would not cover additional expenses of renting a temporary location or expediting the rebuilding process, etc.

Extra Expense coverage is an optional coverage that can be added to Business Income. In the previous example, if the bakery had Extra Expense coverage along with their Business Income coverage, the Extra Expense coverage would cover the additional costs that were incurred due to renting a temporary location, overnight delivery of new supplies and equipment, expedited rebuilding of the original location, etc. This coverage often positively impacts the business’ ability to return to the same capacity it was at before a loss, as being out-of-operation for too long may result in your customers looking for a different provider of your product/service.

Calculating a proper level of Business Income coverage can be very complicated, especially for new businesses or businesses with seasonal/variable products. Keeping excellent accounting records, and backing up those accounting records outside of the business may be essential to getting properly reimbursed by Business Income. Also, initially establishing the correct amount of Business Income coverage should be reserved for a trained insurance professional, as insurance underwriters calculate Business Income differently than a CPA would. 

Note: With Business Income and Extra Expense coverages, the verbiage used is that these coverages will only be triggered after a Covered Loss. Determining the covered losses depends on the policy form you're using. Each policy has a Cause of Loss designation. The more perils covered, the more likely you'll be able to receive the benefit of Business Income and Extra Expense.

Note from the Author (Nov. 14, 2014): After two years of work, we've entirely redesigned our website! Using SquareSpace, we were able to import this blog and we are continuing our blog there. To find the current version of this article and our new articles, click HERE.

The Secret of Cut-Rate Auto Insurers

“The bitterness of no coverage is remembered long after the sweetness of low price has been forgotten.” These wise words from insurance educator Jon Eubank , CPCU, ARM, perfectly exemplifies the problem with cut-rate insurers. Saving 15% in 15 minutes could cost you thousands (or more) from denied claims!

Bill Wilson, Big “I” associate vice president of education and research and director of the Big “I” Virtual University has made a 12-point list of common cut-rate auto insurance exclusions and coverage limitations that would otherwise be covered by a standard insurer:

1. Undisclosed Household Residents Are Excluded. How many of you have ‘boomerang’ kids who came back to live at home?
2. Business Use of Non-Owned Auto Is Excluded. Have you ever borrowed a neighbor’s car or made a business stop in a dealer loaner auto?
3. Business Use of Any Auto Is Excluded. Do any of you ever run to Staples or the post office on company business?
4. Use of Any Non-Owned Auto Is Excluded. Better not drive anyone’s car but your own.
5. Vehicles Over 10,000 Pounds In Gross Value Weight Are Excluded. Have you ever rented a U-Haul truck or an RV thinking your liability coverage extended to the rental?
6. Any Type of Delivery Is Excluded. Denied claims include pizza, newspapers, Mary Kay cosmetics, etc. are not covered
7. Permissive Users Only Get Minimum Limits. This can apply to people who borrow your car or even unlisted household drivers.
8. “Street Racing” Is Excluded. Google “street racing” and see how often people are killed or critically injured in the process.
9. Criminal Acts Are Excluded Or Limits Are Reduced. DUIs or even speeding tickets may preclude coverage!
10. Medical Payments Only Include Licensed Physician Fees. One insured incurred a $25,000 “life flight” helicopter fee that would not be covered, even in part, by a cut-rate policy with this exclusion.
11. Theft Without Evidence of Forced Entry Is Excluded. One insured had a four-figure vehicle-theft loss denied because he left his keys in the car.
12. Sales Tax Is Not Covered Under Loss Settlement. This cost one “same coverage” insured more than $2,000 out of pocket for sales tax on a replacement auto.

Most people never read through their insurance policies. For those with standard insurers (though it is inadvisable), it often turns out alright. However, for those buying insurance through a cut-rate insurer, do you really know what you’re paying for? Odds are that your cheaper price comes with a lot more exclusions and limitations. Think through it logically—you just can’t sell the exact same thing for a lesser price.

The 12-point list was adapted from Bill Wilson’s article ‘Price Check’ that was featured in ‘ia: Insight + Analysis For The Independent Agent’ magazine’s July 2014 issue. To find out more about how insurance isn't a commodity, you can visit IndependentAgent.com.

Note from the Author (Nov. 14, 2014): After two years of work, we've entirely redesigned our website! Using SquareSpace, we were able to import this blog and we are continuing our blog there. To find the current version of this article and our new articles, click HERE.

Cyber Liability: Not Just For the 'Big Boys'

Cyber Liability coverage goes by many different names in the marketplace, and each carrier does things a little bit differently. However, the realm of cyber liability is very broad, and your business may have more exposure than you think!

Cyber liability coverage is no longer only a necessity for multi-million dollar operations and tech companies. Even little ‘mom and pop shops’ have significant exposure to a Cyber Liability claim.

So what all is included in the scope of Cyber Liability? The following is a list of possible scenarios that would be covered by a typical Cyber Liability (CL) policy:

• If a hacker was able to steal the social security numbers or other personal information about your employees or customers, the CL policy would cover the expenses for notifying the government and victims of the breach, credit monitoring for the victims, costs to recover stolen identities, costs of any fines or penalties, and the extra costs for public relations.
• If a hacker was able to destroy company information/trade secrets/digital assets/etc., the CL policy would pay to recreate those items.
• The CL policy would pay any damages to third parties caused by a breach of security
• If a hacker was able to deny your online service to customers/vendors, the CL policy would pay the loss of business income, and the damages to your vendors if they weren’t able to fulfill orders.
• If a hacker was threatening to destroy/deny service if a ransom isn’t paid, the CL policy would pay the ransom.
• If a fraudulent funds transfer was made, the CL policy would cover the money lost.
• The CL policy would cover any suits brought against you for online infringement of domain name, copyrights, trade names, slogans, service marks, etc.
• The CL policy would cover any business interruption losses due to any of these situations, and it would also cover the costs to re-secure your website/server/etc. after a breach.

Simply having private information stored on your computer creates a Cyber Liability exposure. When you have a website, social media site, or online commerce abilities, your risk increases even more! Remember, it's always better to have too much coverage than not enough, when it comes to insurance.

Note from the Author (Nov. 14, 2014): After two years of work, we've entirely redesigned our website! Using SquareSpace, we were able to import this blog and we are continuing our blog there. To find the current version of this article and our new articles, click HERE.