How to Know Which Insurance Policies Cover HR Claims

Human resources departments handle a lot of sensitive company details and employee information. So what happens if there’s a mistake?

Insurance policies can protect against expensive HR claims. But they aren’t the first thing business owners think of when considering business liability insurance.

General liability and crime coverage are usually the first policies a business owner might purchase. But these don’t cover potential risks related to HR policies and procedures.

Before we get into the specifics of HR-related insurance policies, let’s examine how HR operations can be risky.

Why does HR need insurance?

Like accounting or IT departments, the human resources department handles sensitive data and must often handle difficult situations. Examples of disciplines that require expertise include:

• Benefits
• Conflict resolution
• Employee recruiting
• Medical leave
• Termination

But even well-intentioned and highly experienced professionals can make mistakes that turn into lawsuits.

Consider these examples:

• A leak of employee W-2s
• An employee discriminates against a customer
• Denied employee benefits to a worker
• Failing to pay overtime wages
• Mismanagement of employee benefit plans
• Sexual harassment claims
• Violating medical leave laws

All of these events fall under the human resources umbrella. These claims range in cost but can amount to millions of dollars. Liability insurance can help reduce the financial burden in case of a claim.

Eight of the 10 most expensive settlements were related to gender discrimination—just one of the categories protected under federal law.

But how common are these types of claims? The Equal Employment Opportunity Commission (EEOC) recorded 61,331 charges in 2021 alone. And in 2020, workplace litigation hit a record high. In addition, eight of the 10 most expensive settlements were related to gender discrimination—just one of the categories protected under federal law.

HR-related compliance risks

There’s a reason that HR carries so many risks.

First, human resources professionals handle sensitive employee data. This includes:

• Addresses
• HIPAA-protected information
• Names
• Phone numbers
• Social security numbers

In addition, HR professionals often deal with conflict resolution. Even when handled with good intentions, a disgruntled employee can decide to file a discrimination claim.

Employee benefits packages are also complicated to create and manage, with many items, such as health insurance, containing renewal deadlines.

Just on the federal level, there are several laws HR managers need to keep in mind. Some of the most common ones are:

• Affordable Care Act (ACA)
• Age Discrimination in Employment Act (ADEA)
• Americans with Disabilities Act (ADA)
• Employee Retirement Income Security Act (ERISA)
• Equal Pay Act (EPA)
• Fair Labor Standards Act (FLSA)
• Family and Medical Leave Act (FMLA)
• Genetic Information Nondiscrimination Act (GINA)
• Health Insurance Portability and Accountability Act (HIPAA)
• National Labor Relations Act (NLRA)
• Occupational Safety and Health Act (OSHA)
• Title VII Civil Rights Act
• Uniformed Services Employment and Reemployment Rights Act (USERRA)

What insurance policies cover HR claims?

There are a few different policies that can cover HR operations:

Employment practices liability insurance (EPLI)

Employment practices liability insurance is the first and most relevant insurance covering HR claims. An EPLI policy covers several different types of claims, such as:

• Class actions
• Discrimination
• Emotional distress
• Employee privacy
• Harassment
• Wage and hour
• Wrongful termination

The median cost of an EPLI policy is $2,185 or $182 per month, so the coverage hardly breaks the bank. Remember that your specific quote will vary based on your business size, industry, risk exposure, past claims, and desired policy limit.

In the case of an EPLI policy, you may also want to include third-party coverage. This will kick in if an employee discriminates against a third-party, such as a customer or vendor.

Fiduciary insurance

This insurance can cover any claims that deal with employee benefits issues.

Similar to EPLI coverage, a fiduciary policy can be affordable to small businesses. Many businesses with fewer than 100 employees pay less than $1,500 annually.

Errors & Omissions (E&O)

This form of professional liability insurance may be helpful for HR consultants. An E&O policy can protect you from breach of contract or negligence claims.

Slightly more than half of businesses pay between $500 to $1,000 for E&O coverage.

Real-life examples of HR claims

Several real-life lawsuits show how expensive an HR-related claim can be.

For example, Google must pay $118 million in a gender discrimination lawsuit. The class action includes 15,000 women who alleged that the tech giant violated California’s Equal Pay Act. They cited a wage gap of $17,000. This kind of claim would typically be covered under an EPLI policy.

In another lawsuit, Charter Communications paid $7 billion in a negligent hiring case. What happened? One of their service technicians murdered an elderly customer. Since this type of case focused on negligence, E&O insurance may cover a claim like this.

And an example of a fiduciary claim? Recently, Rush University Medical Center settled a $2.95 million ERISA lawsuit. The plaintiffs had said that the medical center violated the law through excessive administration fees and failure to offer better-suited alternatives in their retirement plans.

How do you get HR insurance?

Generally, you’re likely to work with a management liability insurance broker to purchase coverage for your HR department. When choosing an insurance plan, it’s essential to shop around.

Different insurance company providers will offer unique quotes and coverage options. Some may offer excess liability policies, which is an additional policy that increases your policy limit. Whereas others may offer built-in third-party liability coverage. Reviewing options from different brokers also gives you more recommendations on how to structure your insurance.

In many cases, your insurance broker can bundle related policies together. This is called a business owner policy (BOP) for a small business owner. While not every BOP will include EPLI insurance, you could potentially add this policy to your bundle at a lower cost.

What if my insurance quotes are too expensive?

Ultimately, you will need to balance the budget with coverage.

Taking steps to secure your business, prioritize compliance, and reduce friction between HR and employees are all steps that can potentially reduce liability insurance costs.

If premiums are too high, it might be because your business carries many risks. This can be due to having many previous lawsuits. But poorly recorded processes can also increase premiums. Your industry or location can also affect your policy cost.

Insurance underwriters look at all potential risks when writing their policies. Some strategies to reduce your policy costs are:

• Take a higher deductible plan that offers lower premiums
• Combine policies into a BOP
• Overhaul and enforce your HR compliance processes

Taking steps to secure your business, prioritize compliance, and reduce friction between HR and employees are all steps that can potentially reduce liability insurance costs. You may get better, more affordable insurance quotes in the long run by reducing your risk exposure. Additionally, keeping your HR practices updated and enforced could reduce potential claims, thus saving you more money and stress.

More on compliance

As any HR professional knows, compliance can be complicated. But there are ways to bake it into your process and reduce risks. Although it’s impossible to prevent every potential incident, you can minimize threats through the use of people-centric processes, technology, and consistency.

To help you improve your HR processes, we’ve created a few compliance-focused resources that you can use today. And they’re free. A few reader favorites are:

• Our Payroll Report Template
• Employee Termination with Sample Scripts
• The 2022 HR Compliance Calendar