AICPA Insurance Programs

Employment Practices Liability Insurance

FAQ

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What is Employment Practices Liability Insurance (EPLI)?

Why should a professional services firm consider buying an EPLI policy?

What types of claims are specifically covered under EPLI?

Are CPA firms a vulnerable class for claims?

What are some examples of claims against this class of firms?

Doesn't professional liability insurance cover employment-related claims?

Most business owners carry a Business Office Policy (BOP) with Comprehensive General Liability (CGL) Coverage. Doesn't that cover employment-related cases?

In addition to suits from employees, some firms experience claims of discrimination from their clients. Do any policies cover this type of complaint?

What is Employment Practices Liability Insurance (EPLI)?
EPLI is Liability Insurance to help protect your firm when there is an allegation stemming from discrimination, harassment or another type of wrongful occurrence in the course of employment that is in violation of federal, state or local law, common or statuary.

Why should a professional services firm consider buying an EPLI policy?
In addition to protecting the assets of the firm, some policy providers offer extensive risk management and educational services for employment practices. Insurers now provide loss prevention guidelines in written material and live seminars. Many attorneys and employment consultants specialize in management-related employment law and practices. They can set the guidelines for good employment practices including hiring, complaint investigations, harassment policies, downsizing rules, discrimination oversight, drafting employment guides and conducting employee and management employment practices seminars.

In recent years, the cost of EPLI coverage has dropped dramatically, with insurers tailoring policies for small-to-mid sized firms. These new pricing structures can be extremely affordable, especially when you consider the average cost of defending an EPL claim is $50,000 plus lost time, damage to reputation and anxiety surrounding a claim. Stand-alone policies can cover defense expenses and judgments or settlements and coverage today is very broad. EPL insurance should be considered important "business risk" insurance to round out every insurance portfolio.

What types of claims are specifically covered under EPLI?
Generally three areas of employment practices are covered. Sexual harassment and hostile work environment claims represent the highest number of claims. A large group of claims involves all classes of discrimination (sex, race, age, religion, nationality, family, disability and pay, etc.) Third are the wrongful discharge cases due to reengineering, downsizing, mergers and acquisitions.

Are CPA firms a vulnerable class for claims?
Professional services firms such as CPA firms are extremely vulnerable. These firms have highly educated staff and rigid apprentice periods, and their product is labor intensive. The intense work and lengthy hours prevalent in these types of firms can create an atmosphere which is ripe for hostile work environment claims. Employment discrimination, wrongful discharge and sexual harassment are significant issues for professional services firms.

What are some examples of claims against this class of firms?
In a case tried in Chicago this past year, a partner in a small professional services firm was accused of making sexual advances against a young female employee. The partner, who was married with a family, denied any sexual contact whatsoever. The jury, siding with the plaintiff, entered a multi-million dollar judgment, which bankrupted the partnership. In a second case, a partnership failed to promote a black employee to partner. The employee claimed the decision was based on race; the partnership said the decision was based solely on merit. The jury awarded the plaintiff over $3 million. A claim is currently being handled where a female partner was voted out of the partnership for lack of productivity after she had a child. These examples illustrate that the causes of action are wide and varied.

Doesn't professional liability insurance cover employment-related claims?
Typically not. Most professional liability policies include an Insured vs. Insured exclusion precluding claims by employees against employers and partner/owners against partner/owners. Also, these types of claims are excluded under the definition of professional services because employees are not clients and are not receiving covered "professional services." Finally, there is often a specific Employment Practices exclusion in a professional liability policy.

Most business owners carry a Business Office Policy (BOP) with Comprehensive General Liability (CGL) Coverage. Doesn't that cover employment-related cases?
It should not be considered automatic that BOP and CGL policies will cover employment-related issues. Even with these policies in place, several obstacles should be considered when a firm evaluates its potential exposure.

First, these policies are written on an occurrence basis with the intention to insure a particular event. This "occurrence" requirement raises the issue of whether an employment-related case is a sudden event which would be covered, or a continuous exposure to conditions, which would probably not be covered. Secondly, BOP and CGL policies require losses to result from an unintended, unpredictable or fortuitous event. Employment-related incidents often do not occur accidentally but rather happen intentionally. While BOP and CGL policies cover bodily injury, humiliation and mental anguish typically are not included in the definition of bodily injury. Since most EPL claims involve injuries that are not physical, these types of claims are usually excluded. Most importantly, many BOPs and CGLs now have a specific Employment Related Practices Exclusion "for claims arising out of or in the course of employment." Workers Compensation policies generally treat work-related claims as Bodily Injury and do not address intangible emotional distress claims from employment practices claims. The bottom line is that insurers will often raise "coverage" issues when presented with employment-related claims on non-Employment Practices Liability Insurance (EPLI) policies. At best, an insured may have to first seek a coverage decision before addressing the merits of the employment-related claim. This is the best reason for the practice to consider separate EPLI coverage for the specific employment-related exposures.

In addition to suits from employees, some firms experience claims of discrimination from their clients. Do any policies cover this type of complaint?
Some EPLI policies provide third party coverage. This feature specifically covers liability for discrimination and sexual harassment claims by clients, vendors or other non-employees.

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