PEO Employment Liability Insurance Practice EPL and EPLI Employment Practices Liability Insurance

EPLI Employment Practices Liability Insurance

PEO Employment Liability Insurance Practice EPL

Employment-related claims are not a surprise to PEOs (professional employer organizations). Changing rules, shifting standards, and conflicting duties have created a minefield of EPLI (employment practices liability insurance). Perhaps most distressing, employers have encountered (and hired) a new generation of workers for whom a job is viewed as an entitlement. The costs associated with the defense of employment-related claims and the employees claim liability itself are high and are generally not covered by most commercial general liability insurance policies. While employment practices liability insurance (EPLI) is designed to help employers manage the risks inherent in the modern workplace, was it created in contemplation of the PEO employer?

Employment Practice Liability Insurance and PEO

Beginning in the early 1990s, PEO insurers began offering to buy employment practices liability insurance (EPLI). EPLI provides coverage for defense costs and compensatory damages arising out of lawsuits alleging certain wrongful employment practices in professional employer organizations. These policies reimburse employers for the costs of both judgments and settlements, and provide this reimbursement whether the company wins or loses the suit. However, buying employment practices liability insurance policy generally do not cover punitive damages, fines, or penalties.

EPLI coverage is usually provided for an organization, its directors, officers, employers, and former employees. The cost of this coverage generally depends on the type of business involved, the number of employees, and the company’s history of employment-related claims. Recognizing the rapid growth of professional employer organizations, some underwriters have attempted to revamp their products to make EPL insurance coverage available to PEOs and their client companies.

Risk Management for EPLI Policy and Coverages

PEOs have been able to take advantage of the risk management benefits of this coverage and, through a combination of volume-based pricing, the law of large numbers, and implementation of effective risk management and loss control principles, pass along benefits of insurance coverage to their clients who would not otherwise have such coverage available to them. Not surprisingly, PEOs eagerly market the availability of this employment practices liability insurance coverage in an effort to attract new clients and distinguish themselves from their competitors.

The professional employer organization industry has experienced a number of business model permutations, which have been based, more than any other factor, on the relationship of the PEO to the client company and the worksite employees. Quite simply, certain PEOs may be eligible for employment practices liability insurance coverage while others may not. The risk, of course, is that a professional employer organization may think it has secured sufficient EPLI coverage, only to learn there are gaps in coverage or a complete lack of coverage in this area.

EPLI Employment Practices Liability Insurance

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