Despite common misconceptions, nonprofit businesses face many of the same risks as their for-profit counterparts. Employment-related claims, such as sexual harassment, discrimination, wrongful termination and unfair hiring practices, can cause an organization to face serious legal and financial trouble. To guard against these common business risks, nonprofits often rely on employment practices liability insurance (EPLI).
What Is EPLI?
Employment practices liability insurance is a type of liability insurance that covers wrongful acts arising from the employment process. Both small and large businesses may face an employment-related lawsuit at some point. Small nonprofits are especially vulnerable to these claims as most lack the legal resources necessary to navigate the complex area of employment law. EPLI is designed to cover businesses against individuals who claim their legal rights as employees have been violated.
EPLI offers protection against a wide range of lawsuits, such as claims of breach of employment contract, wrongful discipline, wrongful termination, negligent evaluation, sexual harassment, wrongful infliction of distress, deprivation of work opportunities, poor management of employee benefits plans and failure to employ or promote. It also covers claims of discrimination, including discrimination based on sex, age, race and disability.
Most EPLI policies are known as claims-made policies. A claim made under a claims-made policy is only covered if the policy is active when the incident occurred and when the claim is filed.
However, in some cases, a policyholder may be able to extend the policy past its original end date. Despite certain limitations, EPLI can be an affordable and wise option for nonprofits. Factors that influence pricing include the number of employees, industry, revenue, risk profile, employee turnover rate and past EPLI claims.
Why EPLI Policies are Important
Most nonprofit organizations recognize the need to carry EPLI. According to the Society for Human Resource Management (SHRM), nearly 56 percent of all organizations with at least 5,000 employees carry an EPLI policy. Many small businesses also rely on EPLI to protect their interests. An Insureon poll shows that of the 79 percent of respondents who have business insurance, 83 percent reported also having EPLI. With the number of employee lawsuits growing each year, having EPLI is now deemed essential.
Many organizations are under the misconception that they will only face legal fees if they are found at fault in court; unfortunately, this is not always the reality. Even if a nonprofit is found not at fault, the organization will still be responsible for paying certain legal fees and defense costs which can exceed tens of thousands of dollars. EPLI helps nonprofit organizations better protect their finances and avoid the risk of having to shut their business down as a result of a costly lawsuit.
Some nonprofits also make the mistake of believing that their general business insurance policy will cover their case. A general liability insurance policy will help cover property damage claims against a business, medical expenses if someone is injured at the business and some court costs, judgments and settlements. However, many commercial liability policies exclude claims that involve employer-employee conflict. Even a commercial umbrella insurance policy may exclude employment-related claims.
Bundling EPLI With Other Policies
Nonprofit organizations may have the option to bundle EPLI with another policy to potentially save time and money. A nonprofit can benefit from a variety of insurance types, such as the following:
General Liability Insurance
General liability, also known as commercial liability insurance, typically covers claims that involve property damage or bodily injury in which the organization may be held legally responsible. Nearly every business has a need for general liability insurance
Professional Liability Insurance
Also known as professional indemnity insurance or errors & omissions insurance, professional liability insurance protects professionals against claims of negligence by their clients. Professionals such as accountants and lawyers may require professional liability insurance to avoid the hefty cost of a lawsuit.
Business Owner’s Policy
A business owner’s policy (BOP) combines business liability insurance and business property insurance into a single policy. BOP insurance may cover claims that result from disasters such as fire and theft. It can also cover certain types of claims that arise from a business’s operations.
Directors And Officers Insurance
A directors and officers (D&O) policy protects the personal assets of corporate directors and officers, as well as their spouses. Directors and officers may be sued for many reasons, such as fraud, misuse of company assets, breach of fiduciary duty resulting in bankruptcy or financial losses, lack of corporate governance and theft of intellectual property.
Workers’ Compensation Insurance
Workers’ compensation provides medical benefits and wage replacement to employees that become ill or injured in the course of employment. In exchange for these benefits, the employee relinquishes his or her right to sue the employee for the tort of negligence.
Who Needs EPLI?
Some nonprofit organizations may be unsure if they really need to invest in employer practices liability insurance. When considering whether or not this type of policy is needed, ask these important questions: Does the nonprofit hire employees and is the workforce growing? Does the nonprofit hire independent contractors or work directly with volunteers? Does the nonprofit have a written policy and procedures manual and is the manual updated on a regular basis? Do any employees communicate with or come into contact with customers?
If the answer to any of these questions is “yes,” it may be in the organization’s best interest to invest in EPLI. Also to be considered is the level of risk that the nonprofit faces based on their industry. Conduct research to determine if any other nonprofits in the industry have experienced employment practices litigation. Organizations that face a higher risk of lawsuits due to their chosen industry can benefit significantly from an EPLI policy.
Speak with an Experienced Benefits Consultant
Employment practices liability insurance is one of the best forms of protection against employment-related claims for nonprofit organizations. Working with an experienced benefits consultant can help nonprofits find a policy that meets their unique needs and budget. For more information or to acquire an EPLI policy, speak with a benefits consultant at the Business Benefits Group.