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PEOs and Employment Practices Liability Insurance

Professional Employer Organizations (PEOs) are growing, and more small to mid-size businesses are taking advantage of some of the services which help them cut costs. 

One of the advantages that PEOs provide is low cost Employment Practices Liability Insurance. The main reason behind the low cost is the buying power the PEO has in the insurance marketplace. But one has to look at the fine print to see if the coverage provided through the PEO is sufficient to protect your company’s financial statement.

Recently we worked with a company that provides EPLI coverage at an extremely low cost, $34 an employee. Here is the protection they were giving our customer:

  • Limit of Coverage: $100,000
  • Defense coverage only
  • $2,000 per claim deductible
  • Choice of legal counsel is decided by the PEO
  • Covers current employees only
  • Claims limited to complaints given to the EEOC or the equivalent state agency.

So what are the problems we see with this low cost insurance protection?

  • No coverage for any court awarded judgments or settlements of claims outside of the courts.
  • EPLI claims are only limited to those where an employee filed a complaint through a government agency. We see claims brought directly against our client’s through a lawyer, especially wage and hour claims.
  • No coverage for claims from former employees who were not enrolled in the PEO.
  • No coverage for claims from 3rd parties like your customers or vendor who claim to be harassed or discriminated by one of your employees.

In a previous post to our blog we talked about what the costs were for an EPLI insurance policy. In the examples we gave the average cost per employee varied from $89 to $171 and provided the following protection:

  • Limit of coverage: $1,000,000
  • Defense and Damages coverage
  • $2,500 per claim deductible
  • Client chooses which law firm to use from the insurance carrier’s highly experienced team of lawyers
  • Covers current, past, and future employees
  • Claims are not limited to EEOC complaints but from any lawyer.

Having a separate EPLI insurance policy to cover your company, in addition to coverage from the PEO, is a smarter solution that reduces your long term cost of risk.

Scott Harrigan

About Scott Harrigan

Scott started his career in insurance in 1988 and joined Rue Insurance in 2004 as a Marketing Specialist focusing on creating effective risk financing and risk transfer programs for companies and non-profit organizations. In addition to this he is a member of the Rue Insurance educational team that provides ongoing professional development in critical insurance concepts and programs to Rue employees. About Scott | More Posts by Scott