Directors and Officers Liability Insurance

EPLI, also known as Employment Practices Liability Insurance, can be covered under the Directors and Officers (D&O) insurance policy. EPLI is a claims-made policy which reimburses defence cost and settlement cost incurred by an employer on fighting employee-related lawsuits. An employee can make or break the organization and to be fighting against an employee-related lawsuit can cause financial and reputational loss. This coverage can be availed by an employer as an extension under directors and officers liability insurance policy.

Legal cases such as wrongful termination, discrimination, sexual harassment, retaliation, workplace harassment and breach of employment contract etc which are considered to be wrongful employment practices can place great strain on a business. Employee practices liability (EPLI) coverage under directors and officers liability policy is a way to manage and survive during such eventualities and mitigate the risk of facing an employee-related lawsuit. Hence employee practices liability insurance cover is an important layer of risk management available in D&O policy.

A working employee might sue you against wrongful termination and breach of an employment contract or a former employee may sue you against sexual harassment or an applicant for employment may file a case against you. The possibility of such claims is high these days, because of highly educated and conscious employees. It is better to be prepared for contingencies and have a protective and reliable plan to handle such cases. The EPLI coverage helps you to settle the claim and reimburses the defence cost.

In most of the directors and officers (D&O) liability insurance, EPLI coverage is available by default. But one needs to check if your insurance policy is already providing this coverage. If your D&O liability policy is not providing this coverage, you can take it as an extension by paying a marginally extra premium. It can also be bought as a stand-alone policy so if there is a high risk of facing employee-related lawsuits, one can also consider buying the Employee Practices Liability Insurance policy from aninsurance provider.

Buying EPLI as a standalone policy provides broader coverage as D&O policy will only cover top level management but standalone EPLI provides coverage even for the lower level of employees. Employee practices liability claims will be covered up to a certain percentage of the sum insured of your D&O insurance.

Case Study:

XYZ Tech Ltd has bought a Directors and Officers Liability Policy which includes EPLI coverage. A former employee recently filed a defamation case against the firm. He has accused the management of making wrong statements about him. The false statements about him are said to be intentional, in order to damage his reputation which has reduced his new job opportunities. In such cases, the firm has no idea about the wrongdoing on its part. But the director has to fight the case in order to safeguard his reputation. In such cases, a company’s D&O insurance policy with EPLI cover provides defence cost and settlement fees.

In summary – it is your responsibility to stay prepared for such eventualities. Do follow every possible step to maintain a good working environment in your firm. It is a good practice to have an employee handbook or a legal representative for your firm in order to avoid the occurrence of such events. But it is equally important to have EPLI cover in your D&O policy as it is a risk mitigation solution. So the next time you are buying a directors and officers liability cover, also keep an eye on its EPLI coverage section in order to get complete risk protection against lawsuits.

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