Why Nonprofits Should Consider Employment Practices Liability Insurance

The good thing is that most of you, if you have directors and officers liability insurance, already have employment practices liability. Nonprofit management liability policies most often include both coverages.

But you should check to make sure before assuming your policy includes this key coverage

The fact is, that according to Pamela Davis, CEO of Nonprofits Insurance Alliance of California and the Alliance of Insurance for Nonprofits, 95% of the directors and officers related claims that come into her risk retention group (basically an insurance carrier) are employment practices liability claims.

In other words, it’s imperative to make sure that if you have D&O, that you do not forsake including the employment practices liability.

What is Employment Practices Liability Insurance (EPLI)?

Employment practices liability traditionally addresses employer-employee related claims.

While the policies vary from insurance company to insurance company, they typically defend the insured organization and individuals and pay claims for wrongful acts related to (NOT an exhaustive list)…

  1. Discrimination
  2. Sexual harassment
  3. Wrongful termination
  4. Hostile work environment
  5. Retaliation
  6. Violations of many of the laws enforced by the Equal Employment Opportunity Commission (EEOC)

Many policies, especially in the nonprofit world also extend coverage to cover similar claims as they relate to third parties.

For instance, a client or potential client files a lawsuit citing discrimination as a reason why a nonprofit didn’t offer services, that lawsuit, normally, would be addressed by the nonprofit’s D&O and EPLI policy. The general liability and professional liability policies do not intend to respond to such a claim.

In essence, it’s a liability insurance coverage that protects an organization’s assets should their be accusation of or actual perpetration of a wrongful employee related covered act.

What is said at the copier doesn't always stay at the copier (photo courtesy of Morguefile)

What is said at the copier doesn’t always stay at the copier (photo courtesy of Morguefile)

Why Do You Need Employment Practices Liability Insurance?

Employment practices liability insurance allows an employer to breathe a little easier as most executive directors, much less human resources professionals, do not have exhaustive knowledge of every statute and regulation as it relates to employee law. Further, no management team can fully control their employees’ acts, words, and emotional states.

In some ways nonprofits and human service organizations (such as for profit home health, home care, foster care, mental health providers) have added vulnerabilities around employment practices related claims.

Here are some of the reasons for this added vulnerability:
  1. Temptation to Hire Fast and Fire Slow: Some nonprofits don’t have the luxury of a large applicant pool for open positions. That can lead to  hiring candidates without fully vetting their fitfulness for a particular job.
  2. Use of Independent Contractors: While the EEOC’s laws can sometimes be easily applied to clear employee-employer relationships, there is much muddiness around the use of 1099 contractors. Often ICs look and act like true employees which can expose an organization to a suit if they don’t follow the right human resources protocols because the organization is hiding behind the 1099 status.
  3. Legal landscape Shifts: New laws and new addenda to current laws seem to crop up unannounced regularly. It’s nearly impossible to keep up with normal work, much less every employment law, privacy law, and other relevant legal standard.
  4. Economic Unrest: Between 2007 and 2009, EEOC claims jumped by 25%. It doesn’t take a Phd in economics to realize that this jump was due to increased layoffs and fearful former employees due to the great recession. Whether we’re on our way out of this recession or not, economic stress can push employers and employees to make silly decisions.
  5. We Get Too Familiar:  If you walked around your office with a tape recorder, is there an outside possibility you’d catch a sketchy conversation? We treat coworkers like family at times and let our guards down. One can never predict the ramifications of an off-hand comment.
  6. Vulnerable Client Populations: If you are a caring organization, then there’s a chance that your vulnerable consumer or client base can be a source of added legal vulnerability. Opportunistic distant relatives, poorly vetted staff that have low emotional intelligence, and emotionally, mentally, or physically challenged clients can create a powder keg for employment practices third party claims.

As I’ve discussed elsewhere, one of the key reasons you need any insurance coverage is because you have people, operations, or assets that need to be addressed. You don’t buy insurance primarily because of the likelihood that you’ll have a claim (although according to one of our insurance carriers, they get as many employment practices claims as general liability claims, and the employment practices claims cost over 4 times as much on average than general liability claims).

You buy EPLI because you have employees, volunteers, independent contractors, and consumers who might say or do something that would be considered a ‘wrongful act’ or might accuse your organization or individuals of having committed a wrongful act.

You can’t control it. You don’t know all the repercussions. But you can plan a certain amount annually for an unknown amount in the event something should go down.

Employment practices liability insurance is a key part of protecting your vision as a nonprofit.

How Should You Procure Coverage?

Most insurance agencies have access to carriers who can offer employment practices liability. Find one who knows a little about nonprofits or human services and give them a call. Obviously, this guy writing this post has a few tricks up his sleeve, so feel free to reach out.  Most of my contact information is on the ‘About Page’ of this website.

The coverage is one of the big bargains for nonprofits, relative to risk and potential cost of a claim.

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Have you had any experience with employment related claims?

Was an insurance policy used to help navigate the situation?

What questions do you have about this type of insurance?

Leave a comment below and we’ll work on answering questions.

Please note that this blog post (and all of them on this site) are meant to help spark questions and ideas for you to consider with your insurance professional. Each situation is unique and should be treated with specific attention and care. 

 

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