A CEO promises to promote an employee to vice president. Based on that pledge, the employee turns down a job offer elsewhere, but is later terminated during a company restructuring.
Filing suit against the firm and its president for fraud and misrepresentation, the employee wins judgment for $500,000 plus defense costs. Total loss for the company: $650,000.
A female worker sues her employer for wrongful discharge and emotional distress, alleging that she was forced from her job because her supervisor wanted someone younger in her position. The judgment: $2.7 million in favor of the employee.
Such employee-filed lawsuits represent the fastest growing area of litigation today, says Tom Brandt, CEO of Church Insurance Agency Inc. in Akron.
“I used to tell my clients that it cost about $40,000 to defend themselves against these types of cases. But attorneys have told me it’s double that number. Repercussions from such actions can put a company at risk, or out of business entirely,” he says.
To guard against “wrongful act lawsuits,” wise business owners are subscribing to a new line of insurance, called Employment Practices Liability Insurance (“EPLI”).
“Within the last five or six years, insurance companies have acknowledged that employers really need to protect themselves from these incidents. If an employer is innocent, he shouldn’t have to bear the burden of defense costs,” says Brandt.
Todd Witham, a partner at Leonard Insurance Services Inc. in Canton, says that since Leonard Insurance began issuing these policies in 1996, applications for the coverage have dramatically increased.
“Last year, we tripled what we wrote before,” Witham says.
That’s because the coverage cocoons employers against costly litigation ranging from discrimination and sexual harassment, to failure to hire and wrongful termination, among other suits.
Witham says proof of well-managed human resources practices and documentation of current compliance procedures are prerequisites to application, to protect the employer and the insurance carrier. There’s also a deductible or a co-pay based on the amount of loss — sometimes both.
Liability limits can range from $100,000 to $10 million. Asked what liability limit employers should choose, Brandt counsels, “It’s like an airplane crash: your survivors will hope that you have as much coverage as possible.”
Brandt admits that EPLI is expensive because it is relatively new.
“Like any new coverage, until insurance companies have more experience with it to adjust costs based on losses they’re subject to, it will be pricey.”
But the price has already decreased quite a bit, Witham says.
For a firm with fewer than 10 employees, coverage with a half-million dollar liability limit could cost around $850 annually. With 50 employees, the price is about $3,200 per year for the same coverage.
Do employers really need EPLI coverage? Absolutely, says Brandt. Myriad federal, state and local laws affect employer liability, and in all cases, the burden is on the business owner. Even if scrupulous human resources practices are adhered to in the workplace, employers are still at risk
“An employee can make an allegation against you, and even if you’re not guilty, you’ve still got to defend yourself in court,” says Brandt. “And there’s nothing like the icy bath of litigation to make you say, ‘Boy, I really wish I’d had insurance coverage against that!’”
How to reach: Church Insurance Agency Inc., (330) 733-1800; Leonard Insurance Services Inc., (330) 922-1904