What the risk-management process lacks in excitement it more than makes up for in importance. Since the absence of an effective risk-management plan can undermine even the most successful business, minimizing or eliminating risk is the cornerstone of any profitable commercial venture.
When developing a risk-management strategy, business owners typically focus on protecting against the most obvious source of potential liability to the exclusion of others. For self-storage facilities, this often means risk-management focus is almost entirely on the physical site as well as the property stored on the premises for others, and any liabilities that may result if such property is lost or damaged. But there is another considerable exposure.
Consider this: An employee in your organization files a discrimination lawsuit alleging she was not promoted because of her gender. You’re confident the promotion went to the better-qualified candidate and have sufficient documentation to support this decision. Still, having to defend your company against her claim in court could be costly; legal fees might seriously deplete your business’s cash reserves, perhaps even lead to bankruptcy.
But you were smart. Two years ago, you purchased an employment practice liability insurance (EPLI) policy, which covers precisely this sort of situation, ensuring your business is protected from a possible financially devastating loss.
Such a scenario is quite possible in today’s increasingly litigious business climate, in which even the most proactive employers can find themselves in violation of one of the many employment laws governing the workplace. In fact, according to the Equal Employment Opportunity Commission (EEOC), the likelihood of experiencing such a scenario is greater now than it has been in the last decade.
In 2007, employees filed almost 83,000 charges with the EEOC, including charges of discrimination on the basis of race, sex, national origin, religion, age, disability and retaliation. This figure represents the first increase in the number of annual charges filed since 2002. Although a precise explanation for the recent surge in employment-related charges may not be available for quite some time, it is possible that the struggling economy may play a significant role.
In any event, the result for business owners is the same: a significantly increased risk of exposure to employment-related liabilities that can push already struggling businesses over the edge. That’s why EPLI has become an almost necessary part of a business’s insurance umbrella.
The Right Protection
EPLI protects employers against workplace claims such as discrimination, wrongful termination and sexual harassment, whether perpetrated by employees or other individuals. These policies can also be extended to provide coverage for acts discriminating against customers or prospective customers (client discrimination).
Generally, a policy covers eligible losses stemming from such causes of action and attorneys’ fees. And the insurer will provide the services of attorneys who specialize in defending against such claims, significantly increasing the likelihood that employers will prevail in the event litigation does occur.
Maybe you think your facility’s commercial general liability (CGL) policy protects you in such situations. Not so. In most cases, CGL policies specifically exclude employment practice claims. CGL policies protect your business against losses resulting in bodily injury or property damage. Employment practice claims generally involve injuries that are mental, emotional and economic in nature and are, therefore, outside the range of protection offered by CGL insurance.
What does an EPLI policy typically cover? The most common situations include:
- Discrimination and retaliation
- Sexual and general workplace harassment
- Negligent hiring
- Breach of employment contract
- Wrongful termination, dismissal or discharge
- Violations of the Family and Medical Leave Act
- Situations involving defamation, libel and slander
- Denial of training or deprivation of seniority
Most commonly purchased as a stand-alone policy or an endorsement to a directors and officers policy, an EPLI policy is generally available in claims-made format, meaning the policy will cover only those claims that occur and are reported made during its term.
An EPLI policy also requires the insured give prompt notice to the carrier as soon as the insured becomes aware of facts or circumstances that might give rise to a claim. Most EPLI policies are subject to a single-policy aggregate limit of liability covering both defense and indemnity, meaning the costs of defending against a claim will diminish the amount paid to cover settlements or judgments.
Some carriers will allow an insured to purchase defense as well as policy limits, thereby placing the litigation defense costs outside the amount available for indemnity. Ultimately, the best course of action is to consult your insurance agent to assist you in choosing the policy that suits your business’s needs and provides you with the appropriate level of protection.
As with any liability policy, EPLI may not cover certain risks including:
- Risks covered by other policies, such as a CGL
- Intentional, criminal, fraudulent or malicious acts
- Contractual liability
- Strikes and lockouts
- Violations of the Occupational Safety and Health Act
Keep Up Training
Of course, EPLI insurance should be considered only the last line of defense in a healthy business’s battle against workplace liability. Regularly providing your employees with comprehensive training can substantially reduce the risk that they will engage in the sort of illegal or unethical behavior that may lead to litigation.
Unfortunately, during difficult financial times, training is often the first casualty of cost-cutting measures because it is considered a nonessential expense rather than a revenue-generating function. However, since any savings generated by eliminating training may be dwarfed by a single employment-related claim, such a perspective can be costly.
Businesses committed to protecting their profits can provide management and workforce training with minimal expense by providing online training. E-learning offers the information necessary to develop competencies in employment practices that ultimately serve to reduce liabilities. The costs of e-learning are significantly lower than those associated with live training, even though online training is infinitely more effective than standard textbooks.
Moreover, today’s technology allows business owners to easily track their workforce’s training to ensure no employee falls through a training crack. With the option of convenient, affordable online training of employees, the benefits of risk reduction are achieved at a marginal cost.
Also, well-written and properly enforced human resources policies and procedures are essential for keeping your business in compliance with the many and varied regulations covering the workplace, even if it is not in the form of a formal division or department within a self-storage organization. It can be invaluable in reducing the risk of suffering employment-related losses, which often result from a lack of knowledge, attention or both. Ensuring neither circumstance exists within your organization can significantly reduce the likelihood of an employment-related claim.
The good news is that EPLI policies are practical and usually quite affordable. Carefully examine your business’s training programs, employment practices and compliance history to determine its degree of exposure to litigation and weigh these factors against the costs of EPLI. Such a risk inventory may make clear that the cost of an EPLI policy may be a relatively small price to pay when measured against the ruinous financial penalties that can result from employment-practice litigation. Your insurance specialist should be able to assist you in selecting the right coverage for your organization.
Tiffany Luongo is an attorney and director of risk management for Setnor Byer Insurance & Risk, an independent insurance agency dedicated to developing comprehensive insurance and risk-management solutions for clients throughout the United States. For more information, visit www.setnorbyer.com.