Twenty years ago, employment practices liability insurance (EPLI) policies were scarce in the United States. Even a decade ago, most employers didn’t purchase that type of coverage. That has changed.
In 2018, it’s estimated that half of all firms with 1,000 or more workers have in place some version of EPLI coverage, which protects employers against employee claims for discrimination, wrongful termination, harassment, and other employment-related issues. Many smaller businesses now are following suit as insurance companies make such policies more available and accessible.
Should churches take notice of this trend in the public and private sector? Yes, according to the experts we interviewed.
“Churches have this belief that they don’t have these type of issues and that they would never have an employee sue them,” said Cori Cable, associate corporate counsel with Brotherhood Mutual Insurance Company. “But the fact is, it does happen. There might have been a time a few decades ago where churches were rarely sued by employees, but that is no longer the case. Employment practice claims are some of the fastest-growing claims against churches, and it’s because of allegations of discrimination, harassment, retaliation, and other wrongful termination acts.”
The damages awarded through settlement and judgment are increasing, too.
“Employment practices lawsuits are returning very large damages and judgments,” said Frank Sommerville, CPA, nonprofit attorney, and editorial advisor for Church Finance Today. “If you look at statistics from the courts, you’ll see these coming in the hundreds of thousands of dollars each. Churches underestimate this.”
Churches are “behind the curve”
Many churches don’t see themselves as employers in the traditional sense, said Brian Gleason, senior risk manager for GuideOne Insurance. Therefore, they don’t consider the risks and potential negative outcomes like a for-profit business might.
“In some ways, churches are probably more at risk than many businesses in that both the board and the supervisor, who likely is the pastor, do not have significant experience in human resources issues,” Gleason said. “So they’re more likely to make mistakes in the process than the average business owner.”
Additionally, corporate insurance is a widely known and accepted part of business ownership, whereas churches typically are behind the curve in some areas, Gleason added.
Most businesses and churches carry insurance policies, such as comprehensive general liability (CGL), which protect against liability claims for bodily injury, property damage, and personal injury. Other types of insurance that are commonly carried by businesses and churches are classified as personal liability or malpractice insurance and may be known as Directors and Officers Insurance (D&O) and Errors and Omissions Insurance (E&O). These protect employers, and often the managers who work for them, by providing coverage for negligent acts, omissions, or misleading statements that result in lawsuits being filed against the company.
However, Cable said, typically none of these types of insurance address employment claims, which deal specifically with perceived wrongful acts involving employees or applicants and generally are specifically excluded under standard general liability coverage.
Yes, this also includes perceived wrongful acts against prospective employees. An employer—including a church—is exposed to the risk of such lawsuits even before hiring for a position, according to data provided by the Equal Employment Opportunity Commission. A prospective employee may file suit against a church by alleging discrimination after an interview, for example.
Churches also mistakenly think such claims will be covered under another type of policy they already have.
“I would say that those in ministry don’t realize there’s pretty much an industry-standard exclusion for claims that arise in the employment context,” said Steve Case, assistant vice president and senior corporate counsel at Brotherhood Mutual. “So if an employee sues a ministry for bodily injury, emotional injury, harassment, or anything like that, there are exclusions in the general liability forms specifically for those types of claims. That’s why ministries have to pick up other coverage, such as workers’ compensation, to cover employee bodily injury claims and EPLI to cover any other employment-related claims brought by employees.”
What else should be covered?
Most EPLI policies specifically address up to 20 acts that precipitate employment-related claims, said Thomas Bentz, a partner with Holland & Knight who specializes in insurance law.
“Anything that can hurt an employee of a church could be converted into a claim,” Bentz said. “Inequities in pay, failure to promote, or inadequate supervision are examples, as are failure to institute or enforce a policy. Denial of tenure is another. Obviously, the threat is going to be very different if you have five employees versus 500 employees, but you can see what a variation of the types of claims you might get.”
Sommerville said churches also should consider their part-time employees when mulling EPLI among insurance coverage needs, as this category of employee is eligible to file such claims. “The ability of the church to be held liable is very high,” he stressed. “And the risk of the church being exposed to a large liability, even by a part-time employee, can be devastating to a church.”
The cost of coverage
Cost for such protection varies and depends on a variety of factors, such as the number of employees and whether the coverage is written as a line item or a separate policy.
Pricing takes into consideration the size of the church and total number of employees as well as whether risk management procedures are in place (employee handbooks, for instance). Underwriting also considers the types of claims that might arise and the desired limits of protection.
A reasonable point of reference is $10 to $20 per employee, per $100,000 in coverage, said Ed Hancock, vice president and chief underwriting officer with Church Mutual Insurance Company.
Of course, as you weigh the cost of coverage, you also must way to cost of a lawsuit. “If the church gets sued, the church must make sure it has the resources to pay the legal fees to defend the church,” Sommerville said.
The importance of transparency
Transparency in the application process for EPLI coverage is essential as well—as it is in any type of application for insurance coverage, Sommerville said.
“Going back, the application for the coverage is very important, too, because if a church makes a misrepresentation, that could void its coverage if an incident occurs.”
“Ministries should be aware that if they knowingly place or retain an employee that has had issues with sexual harassment previously, that decision could affect employment practices coverage relative to that individual,” Cable said. “If the ministry decides to retain the employee, this could possibly result in a negligent retention claim.”
Understand your state law
Another factor in pricing and policy provisions is state employment law, which varies significantly and is in addition to federal law, Case said. For this reason, the church treasurer or administrator should be up-to-date on those laws or work closely with professionals in the tax, law, and insurance fields who are up to date when it comes to matters involving employee relations, especially termination.
“Many federal and state employment laws don’t apply to small employers, usually less than 15 employees,” Case said. “However, some states have passed legislation that apply those laws even if you have one employee.”
Being aware of your state’s employment laws and working with those who can best help with a church’s tax, legal, and insurance needs is the best strategy to avoid a judgment that devastates the church financially, Hancock said. And while a church treasurer or administrator may not be able to foresee every potential risk, this allows a church to be in a position to weather many difficult scenarios.
Protection makes good business sense
Hancock said that protecting against the possibility of claims is good business sense, and then he added, “I continue to be surprised by this every day, even after 40 years in the business. Maybe the biggest surprise is the willingness of people to sue their employer.”