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May 18, 2016

Employment Practices Liability 101: What You Need to Know

Would you buy a lottery ticket if there was a 51.7% chance of winning? Then why risk losing the EPL lottery by not buying the appropriate coverages?

California has always been a high litigation environment. The national average is 11.7%, and the map below shows the states that are above this. California clocks in at 51.7%, 40% over the national average! That means over 50% of companies experienced an EPL claim in 2014.

As of 2014, two thirds of all private company insurance claims were employment practices related. Wage and hour suits are still the dominating claim, with defense costs alone averaging $100,000. In addition, there have been 100,000 discrimination lawsuits filed since 2006. That equates to 27 EPL claims a day, every day, for 10 years! The average total cost, after defense and damages, is a staggering $291,000.

So, how do you protect yourself from a 51.7% chance of incurring a $291,000 claim?

In addition to having positive employee relations and an airtight handbook and hiring practices, Employment Practices Liability Insurance is one of the most important purchases you can make. These policies are very modular, so you should specifically request the coverages below:

  • Wage and Hour
    • This coverage will provide protection against allegations regarding improper time keeping, overtime pay, or any variance in what an employee is promised regarding break time and pay versus what is on their paycheck.
    • Many carriers are only offering $100,000 in coverage because these claims are so prevalent. However, a small number of carriers are willing to post a $150,000 limit in 2016. Some will increase this to $250,000 with an additional 15% added to your premium, on average. Ask for this coverage and at least a $100,000 limit.
  • 100% Hammer Clause
    • Many insurance carriers will provide an 80/20 “hammer clause” in their policy. This means if they want to settle but you want to go to court, the carrier will agree to court but you will be responsible for 20% of the payments above and beyond the initially offered settlement amount.
    • Your broker is able to negotiate for a 100% hammer clause, and you should ask them to do just that. A 100% hammer clause means insurance carrier will pick up 100% of payments after a court settlement. If you believe there is a trend of questionable claims occurring at your business, this coverage is particularly valuable to you.
  • Immigration Claim Endorsement
    • This endorsement will provide coverage for any actual or alleged violations of the Immigration Control Act of 1986, or any similar federal/state regulations.
    • Coverage will trigger not just for actual violations, but for alleged violations as well. If you have done nothing wrong and someone accuses you of breaking the law, you are still on the hook for defense costs, unless you’ve purchased this coverage. If you have unknowingly hired someone and violated this act, this coverage will pay for the damages in addition to the defense. 


In sum, Employment Practices Liability is no longer a “niche” coverage for companies who want a robust insurance and risk management program. You should now purchase this coverage as routinely as you would General Liability or Automobile coverage in order to protect your business. Contact Tanner Fornesi or your broker at Heffernan Insurance Brokers today with any questions about your EPL coverage.


Tanner Fornesi
Assistant Vice President, Heffernan Insurance Brokers
[email protected]

*This article by Tanner Fornesi was originally featured in the California Refuse and Recycling Council’s monthly newsletter “The Long Haul”.


Hiscox: “The 2015 Hiscox Guide to Employee Lawsuits”; Monitor Liability: “The Rise of EPL Rates”

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