What is Employer Practices Liability Insurance

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Business people at work.
Business people at work. (Image: altrendo images/Stockbyte/Getty Images)

Employer practices liability insurance – not to be confused with employer’s liability insurance – provides coverage for such workplace claims as sexual harassment, discrimination and wrongful termination. Without employment practices liability insurance, businesses are at risk for potential lawsuits filed by employees and in some cases, vendors and independent contractors.

Sexual Harassment

Employers liability insurance protects businesses against sexual harassment claims filed by their employees and business associates. Sexual harassment is described as activities that violate another individually sexually. Behavior that falls under this category can be physical or verbal and it violates Title VII of the Civil Rights Act of 1964, a law that applies to employers with 15 or more workers. The U.S. Equal Employment Opportunity Commission reported that its department received 7,256 complaints of sexual harassment during fiscal year 2013.

Discrimination Suits

Discrimination on the basis of race, gender, age and handicap is illegal; however, it's relatively common in the workplace. In an October 2012 summary of the top 25 settlements for workplace harassment and bias, "Insurance Journal" reported that harassment and discrimination charges were in excess of $350 million. Employer's liability insurance is designed to cover similar cases.

Wrongful Termination

Disgruntled employees who sue businesses for wrongful termination can cost companies thousands and even millions of dollars in settlements if the business is found at fault. Employer's liability insurance pays settlements for these types of claims.

Even employees who have not been terminated may sue for wrongful discipline. If adverse actions have been taken against an employee for their conduct at work, employees could sue if they feel they have been treated unfairly. Employer's liability insurance provides protection in these incidences.

Requirements and Best Practices

Your business is required by law to post your employer's liability insurance certificate in a place where employees can view it, such as in the cafeteria or break room. Although not a requirement, best practices for human resources managers and directors is to include a review of the employer's liability insurance during annual HR audits.

Fine Print Provisions

You should request to have control over all legal decisions within your employer's liability policy, so you can select the attorney of your choice in case you file a claim. Each policy is different, and you should communicate with your agent to discuss your specific coverage to ensure you are adequately covered. Also, most employer's liability policies do not cover punitive damages, civil or criminal penalties. Punitive damages are fines to punish the defendant for their negligent behavior and civil and criminal penalties are fines imposed for violating the law. Both fines are meant to deter the defendant from engaging in similar behavior in the future.

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