This story is incredibly embarrassing. Why? Well, as an insurance guy, I should have known that Employment Practices Liability is the 2nd most likely area to have a HUGE claim (next to Professional Liability) for most companies – including small businesses. But my thinking was pretty old school at the time. That is, I had bought into the same type of insurance protection that insurance agents have been recommending since the 50’s.

That is, I had workers compensation, commercial general liability, property, and professional liability (e&o) – along with my personal auto and home insurance. The problem is that in the last 20 years, employment related lawsuits have sky rocketed and this is excluded from most General Liability Policies. Just google the subject and you will find hundreds and hundreds of articles that demonstrate there have been increasing numbers of suits and judgements against small businesses and it only shows signs of getting worse going into the future.

My thought was that I didn’t need this type of policy because:

• Idaho is a right to work state. No contracts = no problems.
• I don’t discriminate and am very careful not to mishandle protected classes.
• My employees like me. They would never sue me because I treat them right.

Fast forward a few years: This week I am to settle a lawsuit against a company I have ownership in that has dragged on for over 2 years. The cost has been tremendously high. The money spent on defense alone could have bought a small house. And that does NOT include the horrible amount of energy and lost time I spent worrying and working on the case. Some of the questions that have kept me up at night include:

• Is my attorney really doing what’s best for me, or is he only concerned with racking up billable hours?.
• Will the jury ignore the facts and just side with the plaintiff? It’s shown that juries rarely side with employers but instead tend to feel for employees.
• How can I afford to defend this? If I don’t defend, how could I handle the default judgment of nearly 1/2 a million dollars?
• How can I possible continue to find success in business if so much of my time is spent defending what I have?
• Why did I allow such a serious gap in coverage in my insurance plan?

You must be thinking I fired someone or I had a disgrunteled employee to deal with. Not so. The company was sued by an applicant that we still have never met.

The Lesson: As a business owner, you are a target. People have the perception that you have money …. and they can be quick to sue you for all they can get. And with lots of hungry attorneys – they are often happy to take on cases on contingency. That means the fellow going after you has no cost but lots of blue sky. If you choose not to defend, you can lose to a default judgment. So, if you have anything you don’t want to lose, you MUST defend.

Without a good EPLI policy, YOU will be coughing up the money – YOU will be managing your attorneys – and ultimately YOU will be fighting the fight. But even before any lawsuit, every employee and applicant you have has leverage over you as long as you don’t have this type of policy. They can threaten you with something that can bring you to your knees because of the costs associated … a lawsuit. So, you can find yourself in a bad situation where you are literally shaken down by a disgruntled employee for all you’ve got. Perhapss you don’t fire when you should .. or you are forced to try and placate the employee making threats. My eyes are now opened to the fact that employers are literally shaken down every day by the legal system – they call it cost of defense settlements. You MUST defend .. so even though you are innocent, it’s cheaper to settle early for cost of defense to spare you all the time, energy, and possible embarrassment and bad PR.

The alternative is to have an EPLI policy and the TEAM of solid attorneys that go with it. Most all of it is on the insurance company … and they know how to fight for you! At the first hint of trouble, you just put this on them and you are free to go back to work on your business. Oh how I wish I’d have had this policy!!!

Before you rush out to buy something like this, here are a few tips:

1. Not all policies are the same. READ the policies to understand their limitations — don’t pick the cheapest.
2. Make sure cost of defense is outside limits. You want the insurance company to pay for defense OUTSIDE limits. This way they are more likely to get it over with fast … AND you won’t burn through your limit as quickly.
3. Purchase at least 500,000 in coverage. You won’t save much by going less that this … and quite often companies throw in extras (like cost of defense outside of limit) if you have this much coverage or more.
4. Pick a company that provides an HR hotline free of charge with no limits on how often you can call. The best companies provide this and it can be a great tool to guide you through HR issues.
5. Don’t be fooled into thinking you have coverage on your Commercial General Liability Policy. Typically, there is NO COVERAGE. Other times, there is enough coverage to make you mad when you need it. Companies will sometimes include a very small amount of coverage which is more about “limiting” what they must do for you in this area than it is about covering any claim of significance.

I have more in depth information on EPLI including several valuable publications on the subject that I’d be happy to forward to anyone with an interest in learning more. Please just email me.