Should I buy $500K limit for $4800/Yr. or $1M limit for $7400/Yr. of Employment Practices Liability Insurance?

Question

I am a small business owner with 2 bakery cafes in Orange County, California. I want to purchase Employment Practices Liability Insurance. I have 2 quotes and must decide on either the $500K limit policy or pay an extra $2400/Yr. for the $1M limit policy.

I don't want to overinsure and pay for extra coverage needlessly.

I am told by the broker that over 90% of claims are of the nuisance variety and go away within a few months. The defense costs for these are around $10K-$25K.

However, the attorney's average cost if one of these went to trial would be between $250K-$300K, with the balance left for the judgement if lost the trial.

The estimated value of the 2 cafes is $2M and is a S-Copration.

Any advice or referral is appreciated. Thanks.

Answer 1

See if they will allow you a deductible on the attorney expense piece. If you share the cost of the attorney  -you will get a lower rate (25k or 50K deductible).   How many employees do you have vs. how likely is it you'll need employment practices insurance?  This is different than liability insurance which I'd be more concerned about being appropriately protected for in Orange County, CA

Answer 2

You need to look at your turnover, and the type of employee you have.  Also, keep in mind most will settle before trial (but still incur mighty defense costs as they drag out, LOL).  

If you have employees who've been there an average of 5 years or more, less than 20 employees, and management that's sensitive to discrimination issues, and a written employement policy/procedures, you're probably ok with the lower limit.

Unless, of course, you have an incident that requires the higher limit.

Answer 3

Some concern has prompted you to consider this insurance.  I am guessing you didn't have this coverage before.  I deal with general liability and commercial auto claims and the premiums are ridiculously cheap on that end of it in comparison.  At least for an operation your size.  My thought is that to go for the higher coverage.  You can write it off as a business expense and 500K just doesn't go as far as it used to.  If one of the claims hits it is going to be big.  Better safe than sorry especially since you have the write off at the end of the year.

Answer 4

I'd go with the lower limit.  It is true that the defense costs reduce the available limits of liability, but as a small business I think you are being exceptionally prudent to buy this coverage in the first place.  Keep in mind, too, that the carrier should be offering you risk management services like a hotline to call if you have suspected troubles with an employee and that sort of thing.  You could even go with a $250K limit.  Vast majority of claims typically settle rather than go to trial.