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Employment Practices Liability Insurance: Win or Lose, Lawsuits are Costly

Employment Practices Liability (EPLI): Two middle age business workers working together. Woman suffering sexual harassment at the office.

Employment Practices Liability Insurance: Win or Lose, Lawsuits are Costly

Today’s attention-grabbing headlines and viral social media stories are overflowing with employment-related scandals. From Hollywood studios and sports arenas to political offices and business boardrooms, allegations of harassment and discrimination are increasing in frequency, severity, and publicity.

In the past, employers and employees quietly handled workplace conflicts. Family and friends might know about a scandal, and any lawyers hired, but few others would be aware of the claim. Today, a significant portion of the country can become aware of the discriminatory conduct when broadcasted across national media outlets and social media platforms. Quickly, the narrative goes viral and reaches global proportions. Most often, before either party has the opportunity for a satisfactory resolution.

Purchasing an Employment Practices Liability Policy

The number of employment-related lawsuits filed by employees against their employers is rising, and no company is immune. Unfortunately, the auto industry continues to face complicated employment-related issues and is a frequent target of these lawsuits. For many, the question is not if you will face an employment-related lawsuit, but when?

The pressure is mounting on dealers and HR departments to minimize exposure to potential risks, employee-related lawsuits, and reputational harm. These exposures include sexual harassment, discrimination, infliction of emotional distress, breach of an employment contract, failure to employ or promote, mismanagement of wages or employee benefit plans, wrongful termination, or any combination of these risks. Accusations, affirmations, and allegations of this nature can produce a negative impact and decimate your dealership. By anticipating these exposures, your dealership can embrace preventive measures tailored to minimize the risk of time-consuming and expensive litigation.

Employment practices liability insurance policies are a potential tool to mitigate the risks of employment-related lawsuits. By purchasing an employment practices liability policy, you can protect your dealership against claims brought by former, current, or potential employees. This coverage typically pays the legal costs, judgments, or settlements entered against the employer. It does not pay for punitive damages, civil fines, or criminal fines.

Having Skin in the Game

Dealerships often lack this protection but truly need it. Therefore, some insurance companies provide employment practices liability coverage as an endorsement to a dealership’s Garage Liability insurance policy. Others offer it as stand-alone coverage.

The cost depends on the type of business, the number of employees, and various risk factors. In today’s market, even the most robust of coverage offerings will have either a substantial deductible, areas that are severely limited, or potentially both. To illustrate, employers with 500 or more employees will be looking at deductibles/retentions in the range of $25,000 to $50,000 per occurrence. Additionally, securing coverage for wage/hour allegations in states like California or Florida will be difficult, if not impossible.

As a policyholder, you must execute prudent, cost-conscious decisions or share in the loss. Be prepared and understand higher deductibles and coverage exclusions mean ‘’skin in the game’’ financially. A high deductible imposes an immediate burden of payment on your dealership in the event of an employee-related lawsuit. Policies with large deductibles may require collateral in the form of a letter of credit to ensure you can pay for your share of a loss.

Ensuring Proper Coverage

Most employment practices liability policies are written on a claims-made basis. The policyholder can only receive insurance benefits if the policy is in effect at the time of the incident and when the lawsuit is filed. Because employment claims often come months or years after an alleged incident, your dealership could be left vulnerable if proper coverage is not in place. To avoid a lawsuit disaster, you will want to ensure tail coverage is purchased or your insurance has not dropped.

Considering COVID-19 Lawsuits

The pressure of this global pandemic has caused employment practices liability claims to magnify. Check with your insurance company’s claims department to identify and understand the specific coverages, limitations, and exclusions related to COVID-19.

COVID-19 has wreaked havoc on all sectors of the economy, and the auto industry has not escaped its fury. Many dealerships have faced an increased risk of COVID-19-related employment practices liability claims as more employees return to the workplace. For example, an employee claims termination because the employer retaliated against them for complaining about unlawful behavior. In 2019, this might have been sexual harassment or discrimination. Now, it might be the employer disregarding laws and failing to take proper steps to reduce health and safety concerns.

Lowering Exposure to Employee-related Lawsuits

Unquestionably, workplace problems exist and can often be subtle or difficult to pinpoint. Therefore, your dealership must have a zero-tolerance policy for any form of harassment or discrimination, including “star employees.” These established procedures and measures must be in place and disciplinary actions afforded without discretion. When a problem arises, an open-door policy will help employees report issues without fear of retribution. And recognize, the quick to litigate, guilty until proven innocent atmosphere threatens the fabric of employer/employee relations.

To help lower your exposure to employee-related lawsuits, take a hard look at your employment practices, policies, and procedures that will be ‘’Exhibit A’’ in a courtroom, and proactively educate your managers and employees.

First, develop effective hiring and screening programs to avoid discrimination in the hiring process. Second, post your corporate policies throughout the workplace and place them in employee handbooks. Third, show employees what actions to take if they are the object of harassment or discrimination by a supervisor or anyone within the business. Lastly, document the incident and the steps taken to prevent, investigate, and solve the dispute.

And remember, be consistent with your approach and develop a culture that is honorable and defensible. Perhaps most important is to create a friendly and compassionate work environment where your employees feel secure and take pride in their place of work.