The need for employment practice insurance

THE need for employment practices liability insurance (EPLI) arises from two angles: firstly, the increasing volumes and costs of employment practices lawsuits and the employment practices exclusions in many other liability policies.
These two fundamental reasons are justifying the growing popularity of an otherwise new form of insurance.
EPLI is a type of insurance whose intention is to reimburse a company against the costs of defending a lawsuit in court, including settlements depending on the judgment passed by law courts.
The policy covers claims alleging that the employer engaged in unlawful conduct with the employee.
These claims have to be within the employment relationship’s confines, which can be made by employees, former employees, applicants for employment, volunteers, third parties, etc.
There has been some continued debate among different stakeholders on the most appropriate form of insurance to cover employees in the recent past appropriately. The ensuing discussion has been around employers liability (EL) – discussed last week, and group personal accident – also discussed on this platform recently.
More so, there is workmen compensation – a compulsory form of insurance provided by the government or a quasi-government entity.
Other forms of liability policies are directors’ and officers’ liability and professional indemnity, which have been discussed on this platform.
The question is, ‘do employers need all these forms of insurance, or is there one policy that covers all risks around employees and employers?’ Well, each type form of insurance addresses specific needs.
Whereas overlaps may be there, it is crucial to understand these policies’ intentions to ensure that adequate cover is in place.
EPLI, as indicated above, covers the employer against claims by employees for alleged infringement of their rights.
It may result in an employee suing the employer for violation of employment rights. The increasing awareness of rights has exacerbated the trend.
More than ever, employees know their rights, and pressure groups are, in some cases, available to offer legal support to affected employees.
A critical difference between EL and EPLI is that for the former to respond, the employee must prove negligence caused by the employer, i.e., arising from the vicarious duty of care.
Further, the negligence should result in injury or death or contracting industrial diseases.
EL does not cover employment practice related cases: such cases do not involve negligence by the employer. It is for such gaps that EPLI aims to fill.
The cases that may lead to a lawsuit by the employee are varied.
These may include discrimination of the employee, wrongful dismissal or termination of employment, and sexual harassment.
Other cases include breach of contract by the employer, the wrongful discipline of an employee, defamation including libel and slander, and mismanagement of benefits due to an employee.
There are numerous others in different sectors.
EPLI policy seeks to reimburse the company against the costs of defending a lawsuit in court, including settlements depending on the judgment passed by law courts.
For this reason, it is essential that the employer or business owner identifies, analyses, and evaluates their risk exposure to the practices mentioned above.
Such an approach should lead to arranging an appropriate ELPI with appropriate limits of liability.
The limits will differ from one employer to another, as the risks also vary similarly: an insurance professional’s services such as a broker gains significance in this regard.
EPLI is usually arranged on claims made basis: claims should be made during the policy period.
In some cases, a policy may be extended for a certain, say 12 months, within which claims may also be made.
Another vital issue to note is that EMPLI can be arranged either on ‘to defend or pay bases.’
When placed on the former, the insurer’s obligation includes to defend the claim or lawsuit; cover all legal fees and costs, and pay for any covered liability.
The ‘to defend’ basis gives the insurer greater control over the EPLI claim, including selecting a lawyer, settlement, and trial strategies.
All these obligations are subject to limits in the policy.
Contrariwise, a policy is arranged on the ‘to pay basis’ gives the insured more control over cases.
The insurer’s obligation remains that of indemnifying or advancement of defense costs.
The insurer does not directly get involved in the court process or selecting a lawyer. Instead, the insurer only reimburses the insured for the covered expenses and losses. However, it depends on how the policy is structured.
The need for EPLI cannot be overemphasised.
Employers must protect themselves against potential lawsuits from the employees arising from employment-related issues, as discussed in this article.
I wish to thank Herfty Muzyamba for contributing to this article.
Herfty is a manager at Professional Insurance Corporation Zambia Plc.
For comments or questions, email or or visit my Facebook page Webster Twaambo, Jr.

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