Does Business Liability Insurance Cover Wrongful Termination?

Insurance companies sell liability insurance for architects, engineers, accountants, dentists and commercial enterprises of all kinds. Employment practices insurance is often sold as a separate product, so business owners should not assume their policy covers wrongful termination unless the policy specifically says it does in writing.

Any situation that escalates to the point at which an employee gets fired can involve hard feelings on both sides. For example, if the owner of a convenience store fires an employee because of missing inventory, the owner might feel the employee let him down by not minding the shop while the employee might feel unfairly blamed for a shoplifting problem she could not have prevented. When people feel that they have been treated unfairly, they sometimes sue. Employees can sue for wrongful termination if they believe they were fired for illegitimate reasons such as age, religion, gender, race or because of sexual harassment. Lawsuits for wrongful termination can be extremely expensive regardless of who wins.

Wrongful termination used to be covered under regular business owners' liability insurance. In some cases, insurance companies had to pay millions of dollars when a client was judged to have engaged in a pattern of discriminatory practices, so they began to offer employment practices liability insurance as a separate product. This allows them to control their costs by charging more to insure higher-risk clients such as larger businesses and businesses with a history of getting sued by former employees.

Employment practices liability insurance covers a business in case it is sued for wrongful termination by a former employee. The cost of an EPLI policy depends on the number of employees and the history of the business. A company with five employees and no history of past wrongful termination or discrimination lawsuits might pay $2,000 to $3,000 a year, while a company with more than 20 employees can pay $15,000 a year or more, especially if it has a history of being sued for discrimination.

Read More: What Does Liability Insurance Cover?

EPLI coverage is sometimes still included in a business owner's liability package or a directors and officers package. A professional liability package such as architects and engineers liability, dentist's liability or commercial enterprise liability generally covers against allegations of professional malpractice or misconduct made by a former client rather than a former employee. Business owners concerned about the risk of a wrongful termination lawsuit usually must purchase EPLI coverage separately.