It’s becoming increasingly necessary for all firms, yet only about 50% have it. It’s employment practices liability insurance.
EPLI is coverage for claims brought by disgruntled employees, and in the current “downsizing environment” it’s a necessity, says Uri Gutfreund, specialist in law firm insurance at Singer Nelson Charlmers in New York whose actual title is Law Firm Insurance Guru.
“In the good old days when the market was hot, a law firm could let people go and they’d get picked up the next day by a different firm.” But today getting another job isn’t easy, “so they come after you.”
EPLI covers employment-related lawsuits such as claims of harassment, discrimination, retaliation, and wrongful termination.
It also carries the side benefit of reputation coverage, he says. “The media loves writing about employment issues because they tend to be salacious.” And there’s extra interest when the culprit is a law firm “because firms are supposed to do the right thing all the time.”
EPLI coverage can settle an employment issue “before it gets to a level of media exposure that hurts the firm’s reputation.”
First, cover the partners
Gutfreund terms EPLI is “the Wild West of insurance” because it’s relatively new and because policies vary widely in coverage.
As to what particular provisions the firm needs, his advice is to start with one of the most serious of all items, and one that is often left out – the partners.
The policy should count the partners as employees. Partners who have no voice in the firm’s management can be considered employees, and without that provision, the firm has no coverage if one of them sues.
Discrimination claims from partners “happen all the time,” he says. What’s more, the damages are usually quite high because they are based on earnings.
There’s quite a bit of difference in damages for a claim brought by a staffer making $20,000 a year and a partner-in-name attorney making $200,000.
Cover third parties too
Along with partner claims, the policy needs to cover claims made by third parties.
The basic premise of EPLI insurance is that it covers claims made by employees. It doesn’t necessarily provide coverage for a claim made by someone who, for example, is visiting the office but isn’t an employee. Most businesses just don’t have that risk.
But attorneys and other professionals are “in the field a lot.” They spend time at third-party locations. What’s more, the third parties spend time in law offices. Mostly, those are vendors and clients, and yes, they can file discrimination claims against the firm.
It can happen easily with court reporters, he says. Most of them are women, and many times a male attorney repeatedly requests the services of a particular female court reporter and for a valid reason such as her speed or professionalism.
Then it turns out “the court reporter doesn’t like going to that guy’s office” and alleges that sexual harassment has been going on. Similarly, a female client might claim harassment from a male partner in the firm.
For that reason, the policy needs to cover thirdparty claims. And be careful with how that provision is worded, he says. Some policies have third-party coverage but specifically exclude claims made by clients. Make sure there is no such exclusion.
Failure to make partner? Yes
Another type of claim to cover is a one firms often encounter – failure to make partner.
An associate claims the firm held out the promise of partnership but didn’t make good on it. And if the scorned associate is in a protected category such as race or gender or age, the claim will be that partnership was denied for discriminatory reasons.
Gutfreund points out that the standard EPLI policy doesn’t have that coverage, again because it’s not needed in most businesses. Nobody is going to sue for failure to become an owner.
But law firms are unique and need the coverage, because promotion to ownership “is common.”
Wage and hour claims
There’s also the issue of coverage for wage and hour claims.
The payouts themselves are almost never covered, Gutfreund says. Most policies exclude claims made under the Fair Labor Standard Act.
But what the policy can cover is the defense costs, and that’s worth getting. “It won’t cover what the firm owes, but it will help with the legal fees.”
Coverage for prior acts
Another item that needs to be included is prior acts coverage.
Most EPLI policies provide coverage only for acts that happen starting at the date of purchase.
“That means they aren’t so valuable in year one,” because the firm has no coverage for anything that has occurred in the past. The prior acts provision “makes the policy worth much more.”
The price of it all
There is, of course, extra cost for the extra coverage.
Without those provisions, the cost for $1 million coverage runs in the neighborhood of $100 to $150 per employee, Gutfreund says. So for a 100-person firm, a bare-bones policy will carry an annual cost of $10,000 to $15,000.
Add in the extra provisions and the price can go up to as much as $200 an employee, or about $20,000 for the same firm.
The money can be significant, he admits, “but it’s not worth it” to take the risk. Buying nothing more than the basic coverage “is like buying health coverage that doesn’t cover cancer.”
As to how much coverage the firm needs, the exposure depends on the salary of the employees. For a $10 million payroll, some firms opt to buy coverage for half that amount. But usually $1 million to $2 million is sufficient.