Claim Scenario: Employment Practices Liability Insurance

Our restoration contractor clients will often ask us why they should consider employment practices liability insurance. We just had a recent claim come up for one of our contractor clients that we feel highlights the need for this insurance even in situations where your company is not at fault:

The Scenario: One of our restoration companies had an employee that was 62 years and had worked at the company for over 10 years. Over the past several years, this employee's work performance had begun to significantly decline to the point where the restoration company had received several complaints from clients and other coworkers. In response to the last complaint, the employer decided to terminate the employee. The restoration company then hired a much younger (29 years old) replacement employee. The ex-employee then filed a charge with the EEOC alleging that the termination was based strictly upon his age.

The Risk Factors: While the restoration company had more than enough reasons to terminate the employee based upon his performance, many of the issues were not documented properly. This left the contractor with little evidence to refute the complaint originated by the former employee.

The Result: The EEOC issued a Right to Sue Letter and the employee filed a suit in federal court. As a result of the incident, the restoration company was forced to settle the matter for $150,000 plus an additional $100,000 in defense costs.

The Takeaway: While this contractor wasn't necessarily at fault, they left with a significant fine and defense costs. Thankfully, the contractor had insurance to not only protect them from the issued court settlement, but they also had their defense costs paid for by the insurance company.

If you have any questions on how employment practices liability insurance can protect your company, please feel free to contact our office.