Common Misconceptions about Employment Practices Liability Insurance and Lawsuits

Discrimination suits against businesses are extremely common in U.S. courtrooms.  According to the Equal Employment Opportunity Commission, there were nearly 94,000 discrimination complaints received in 2013 alone. Of these, about 35% of cases were due to racial discrimination and 30% were due to sex discrimination. When it comes to the total cost of discrimination suits against businesses, there is no specific figure available. However, a fair estimate is about $2 billion annually. There is a type of insurance designed to protect businesses from lawsuits, which is called employment practices liability coverage. EPLI is offered by insurance companies as part of a business product line. It is important to note that there is a disparity, which is that many eligible companies do not buy this type of insurance. This is surprising to many industry experts due to America being a highly litigious society. There are many myths tied to EPLI, so it is necessary to dispel them to better understand just how much businesses truly need to be protected from litigation. One common myth is that a business is immune to lawsuits due to a special company structure or other factor. Regardless of the type of company or what structure is used, every business is still susceptible to lawsuits. Some larger businesses may not have the HR practices or policies they need to keep a discrimination suit from proceeding. If a business does not have a structured setup, it is more vulnerable than the owners might think. Another common misconception is that businesses can absorb the costs of lawsuits if they are filed. However, this is far from the truth. Any type of legal action will be costly, and the cost is not always just financial. Management staff and other workers will be asked to testify in most cases, so they will have less time to focus on their work priorities. Such an upsetting event will affect productivity, and thus, the bottom line. Experts say that it is common for businesses to file for bankruptcy due to lawsuits. In addition to lost income, the specific costs related to discrimination lawsuits are very telling. In 2013, Bank of America agreed to pay $39 million to settle a case filed by women who worked in its Merrill Lynch brokerage operation.  In addition to paying damages to the affected women, Bank of America also agreed to change its policies to give females a better chance of succeeding in the workplace.

Similarly, in 2012, The U.S. Department of Labor achieved a $3 million settlement with the ground delivery unit of FedEx to settle allegations that the company discriminated against more than 20,000 job seekers at FedEx facilities in 15 states.  These cases illustrate that the cost of settling a law suit can be tremendous.

There is yet another myth that business owners think general coverage will protect them from discrimination lawsuits. However, it will not protect them. Workers’ compensation, business owner policies, professional liability policies and general liability policies sometimes exclude liability from lawsuits about discrimination. Although business owners can take a variety of non-insurance precautions, EPLI is the only option for full protection against the costs of discrimination lawsuits. With an EPLI policy, business owners will be protected from lawsuits stemming from discrimination, sexual harassment, breach of employment contract, wrongful termination, failure to promote or employ, negligent evaluation, deprivation of career opportunity, wrongful discipline, mismanagement of employee benefits and wrongful infliction of emotional distress. To learn more about this type of insurance, call ACBI at 203-259-7580 or visit our website.


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