Employment Practices Liability and D&O Coverage

Employment Practices Liability

Employment practices liability (EPL) insurance covers claims and lawsuits related to harassment, discrimination, wrongful terminations, etc. EPL is not limited to claims just by employees, it usually includes some, if not full, coverage for volunteers and third-party claims as well as.  This coverage is usually included as part of the nonprofit D&O liability.

Three Reasons Why Your Nonprofit Needs this Coverage

  1. You can’t know everything: Employment law is complicated and tricky. However, part of what you get with Employment Practices Liability is help with your employee handbook as well as access to legal help.
  2. People get mad: Even an alleged wrongdoing of discrimination or harassment, etc. can cause a lot of problems within your organization and you want to have a place to turn for immediate help to deal with these situations.
  3. Sexual harassment Claims on the rise: Even a mere suggestion of sexual harassment can ruin the reputation of your organization and if this happens you want to be able to respond quickly and with the best legal advice available.

This Could Happen to Your Nonprofit

Failure to Accommodate:

An employee with ongoing performance problems was eventually terminated but alleged he was not given an accommodation due to stress in his personal life. Unfortunately, the employee’s file was not well documented on the performance issues, and the nonprofit had not addressed the accommodation request. The employee was highly paid, and the matter was heavily litigated over a four-year period. Because of the potential for an unfavorable jury verdict, the claim was eventually mediated to a settlement of $350,000 after $230,000 in defense expense fees were incurred.

Volunteer Discrimination:

A volunteer center asked a volunteer to resign.  She filed a discrimination suit claiming they asked her to leave due to her sex, race, and the fact that she was pregnant.  The case went to court and the volunteer was awarded $65,000 however, the defense costs were in excess of $150,000.


An employee of a youth organization filed a retaliation suit after being fired.  He alleged that he was fired for making a workers comp claim for a serious injury.  The matter was mediated and the former employee received $33,000 in wages and the defense costs were $21,000.


Improper Sexual Conduct / Physical Abuse

Nonprofit Improper Sexual Conduct and Physical Abuse coverage provides protection for actual and alleged claims of abuse by your employees and volunteers to third parties.

Three Reasons Why Your Nonprofit Needs this Coverage

  1. Background checks aren’t foolproof: You do your best to screen your employees and volunteers but the screening isn’t always perfect and sometimes people who aren’t 100% honest slip through the cracks.
  2. You can’t directly supervise everyone at every moment: Employees and volunteers often have unsupervised contact with clients.
  3. People don’t always know they are acting inappropriately: Sometimes people have the best intentions and act in a caring way but it is not perceived that way by the third party.


This Could Happen to Your Nonprofit

Day Care Molestation:

An independent daycare contractor was certified by a nonprofit. A child placed in the daycare center was molested by the teenage grandson of the daycare contractor. Litigation ensued and the nonprofit’s records showed all appropriate site visits and background checks had been carefully done. Based on case law that insulates a nonprofit from the unforeseen criminal acts of a third-party and their strict adherence to protocols, a court ordered dismissal that was upheld on appeal. No damages were paid on behalf of the nonprofit, but almost $150,000 in defense legal costs were incurred.

Assault by Employee:

A client of the nonprofit’s safe harbor house was sexually assaulted by one of the nonprofit’s part-time gardeners, who had a mild mental illness. Investigation revealed that the gardeners were supposed to be closely supervised and his absence from the crew could not be explained. Based on medical records that reflected little physical trauma but a psychological reaction, the claim was eventually settled at a mediation for $50,000 with $11,000 in defense costs.

Improper Relationship with a Client:

A food delivery volunteer for a meals on wheels program engaged in a consensual sexual relationship with one of the female clients he delivered to. When this was discovered, he was reprimanded when he should have been terminated, The client filed a lawsuit claiming she was coerced into the relationship in order to obtain food.   Following protracted legal discovery the case settled for just over $100,000. Defense costs were $50,000.


Directors & Officers Liability

Non-profit directors and officers (D&O) insurance provides coverage for protection for exposures that are not covered by your non-profit general liability policy or related policies. Non-profit directors and officers insurance covers claims and lawsuits associated with the actual or alleged bad management decisions made by the board of directors. The coverage can include the mismanagement of the non-profit’s funds, failure to provide particular programs or services, etc.  Most (but not all) non-profit directors and officers insurance policies also cover employment related practices claims and lawsuits. The coverage can include claims of harassment, discrimination, wrongful terminations, etc. Note that the coverage extends to claims made by volunteers and third parties as well as employees.


3 Reasons Your Nonprofit Needs this Coverage

  1. You want the best board possible: Many members of the community that have skills beneficial to your organization may not be willing to serve if you do not have this coverage in place.
  2. Volunteer protection Laws are not absolute: While your board members may have some protection under state and federal volunteer protection laws many claims fall outside of those protections, and D&O coverage fills in those gaps.
  3. You can’t please everyone: The board can make decisions that they think are in the best interest of the organization but unknowingly cause harm or at least perceived harm which can lead to a claim.


This Could Happen to Your Nonprofit

Misrepresentation of Financial Status

The board of directors of a foundation was sued by a group of donors claiming misrepresentation of the foundation’s financial status.  They specifically alleged that donations were not being used for the purpose specified by the donors.  The legal fees were more than $56,000 and the case was settled with repayment of $160,000 to donors and dismissal of several key board members.

Failure to Manage Appropriately

At a holiday fundraiser and entertainer threw a gift into the crowd injuring an attendee.  The general liability policy covered the injuries to the attendee. However, the injured party also sued the board of directors for financial damages claiming lack of planning for adequate safety protocols and training.  The claim settled for $200,000, and the defense costs were $25,000.

Breach of Contract:

A nonprofit was sued by an independent contractor for breach of a project contract, claiming unpaid obligations. Not all D&O policies provide coverage for breach of contract, but often there is a sub-limit for defense costs  only, so the nonprofit was provided with an experienced defense attorney to assist them. While the defense costs reached $25, the nonprofit was able to obtain a very favorable compromise on the contract damage issues.