What is EPLI Insurance and why is it important?

December 28, 2019

What is EPLI Insurance and why is it important? EPLI Insurance (Employer Practices Liability Insurance), provides coverage against claims stemming from employees and former employees allegations of Discrimination, Harassment, Retaliation, Wrongful Termination and Improper Workplace Conduct. This type of coverage is unique in that the risks mentioned are not picked up in other policies, not General Liability, not Errors and Omissions, not Directors and Officers. A lot of people will make the incorrect assumption that amongst those policies there is coverage for such risks, that can become an expensive mistake.

The risks to a company making such an incorrect assumption can be risky, and that risk is increasing. Claims related to EPLI have been and continue to be on the rise. According to the U.S. EEOC (Equal Employment Opportunity Commission), for 2017 the most common form of employment related charges is retaliation followed by discrimination based on race, sex or disability. Between these categories there have been over 122k claims made in FY 2017. Some other common forms discriminatory practices that can result in such a claim include religion, age and pregnancy.

In terms of the expense and time associated with an EPLI claim, the following information comes from The 2017 Hiscox Guide to Employee Lawsuits 

A representative study of 1,214 closed claims reported by small to medium-sized enterprises (SMEs) with fewer than 500 employees showed that 24% of employment charges resulted in defense and settlement costs averaging a total of $160,000. On average, those matters took 318 days to resolve.

So what you have are claims that take a long time to settle, can cost hundreds of thousands of dollars and are covered by this specific type of insurance coverage. The short answer to the question of why is it important is pretty self explanatory, if a company doesn’t have EPLI coverage it would be looking at such claims resulting in defense costs  and damages being paid by the company itself … maybe yours.

According to Chubb’s 2018 Top Risks for Private Companies in the U.S. more than one in four private companies reported experiencing an EPLI loss in the last three years. What’s interesting is that despite these numbers one-third of the respondents to the study have not purchased EPLI coverage.

What that says is that while the risks are prevalent, companies aren’t taking the steps they need. Why? The Chubb report goes on to say that one-third of non-buyers think it is covered by another form of insurance, nope.

So what are the benefits and why is it important? The benefit is coverage against some of the most prevalent forms of insurance claims made against companies today. As a broker I can tell you that a majority of the claims actions I see now are in the EPLI space. To be frank I explain EPLI exposures as a ‘when’ situation and not an ‘if’ to my clients and impress upon them the importance of getting it.

If this is something your company has considered implementing and could use some more guidance feel free to reach out with a call or an e-mail. I’ll be happy to act as a resource.

Nathan Therrien
Founder
Business Insurance & Benefits Services of MA
978-400-7014 x700
nathan@bibsma.com
www.bibsma.com 

What does directors & officers insurance cover and how do you know if you need it?

December 8, 2019

What does directors & officers insurance cover and how do you know if you need it? Directors and Officers insurance is designed to protect the directors and officers of a company from litigation expenses and damages where such people are directly sued by an outside party. Such third parties may include investors, customers, employees or other interests. The private assets of such directors and officers may be at risk in such litigation. The directors and officers insurance is a coverage that will indemnify a company director or officer for legal defense and damages or indemnify a company in instances where it will indemnify their director or officer in question.

Directors and Officers Insurance

So what are the instances in which a director or officer could face such a situation? This is an area that has been getting more and more attention due to the frequency with which such suit are being brought. Claims against D’s and O’s can cover a lot of ground including instances such as

  • Breach of Fiduciary Duty
  • Fraud
  • Claims of illegal business practices
  • Misrepresentation
  • Regulatory violations
  • Shareholder lawsuit

There’s more than this to the list but you get the idea that there is a lot of ground. Essentially, a type of claim that is aimed at the leadership of a company regarding leadership decisions and policy can fall into this category of claim.

As far as knowing if you need it, if you are a publicly traded company, yes you do and you already have it (at least you better). More likely if you are asking this question it is because your company is a private one and you are debating if you need it. From my experience the answer comes down to three rationales.

A prerequisite to a funding round

One point at which it makes sense to insure your directors is if getting a pile of money depends on it. In many cases, VC or private equity firms will make this a contingency to closing a round of funding for a company. The amount of coverage will be set by the entity but more often than not it is a stock $1mm coverage amount. EPLI may also be a component of this prerequisite and would be a separate line item in a comprehensive management liability policy, just be aware.

You are trying to land a board member and they require it

I’ve had clients out in Silicon Valley try to bring experienced people in to become part of a board of directors. The people that were targets of these companies were experienced old hands in the tech and startup space, so one of the first requirements these folks had was making sure that D&O was in place. If you are trying to put a board in place made up of experienced industry veterans, be prepared to have Directors and Officers coverage become part of the conversation.

A third rationale is a little more of a judgment call on the timing, but if you yourself are an officer and are asking this question, you will want to consider it when you feel it is time to……

CYA-Cover Your Ass

As soon as there are directors and officers acting in a management capacity, there is a need for this type of coverage. Most bootstrapping startups will put it off until there is a trigger and that’s understandable but if the company has some traction and is moving along well enough where the resources are there, get this in place.

 

 

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