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Mar 28, 2017

Do I need liability insurance as protection against a potential domestic employee lawsuit?

Everyone has heard about lawsuits alleging sexual harassment, gender/race discrimination or wrongful termination in the workplace. But have you ever thought about a claim like this being made against you personally?

In fact, many families don’t consider their staff employees as potential claimants. Yet, with many states adopting domestic employee bill of rights legislation, families who employ staff need to re-think and protect their households as if they were running a business.

The same claims made in the office of a Fortune 500 can be made against a family household with a staff of even just one employee.

Employment practice liability insurance (EPLI) can help protect families from such a claim demand arising from employment. The most frequent types of claims covered under such policies include: wrongful termination, discrimination, sexual harassment and retaliation. EPLI will also cover as insureds household management personnel and employees.

EPLI policies are written on a claims-made basis; therefore it is important to inform the insurance company immediately when a demand, complaint or action occurs. EPLI insurance contracts can provide defense costs either inside or outside the limits provided on the policy. If the policy offers defense coverage inside the limit, depending on the legal costs incurred, the policy’s limits will be reduced.

With many states adopting domestic employee legislation, then, we consider it crucial that our clients understand the importance of risk-management coverage that includes insurance protection for a potential claim from employees.

Just because the hired help is a family friend doesn’t mean he or she won’t seek legal advice.

I have found that the best way for any insurance firm to uncover hidden risk is to identify, and meet with, selective clients on an annual basis. During this meeting, risk advisors should take the time to reacquaint themselves with the client, make observations and ask direct, pointed questions.

I recently had such an annual review with one of my clients. Unlike past meetings, I was surprised when the door opened and the person who appeared was not either of my clients, but the family’s newly hired housekeeper. My first question during the review, therefore, was, “When was this new employee hired?”

Not surprisingly, my clients responded that the housekeeper was not an employee, but a friend of a family they have a very close relationship with, who helps out around the house.

After some more digging, I uncovered that the housekeeper cleans the house, drives the kids around town to activities and occasionally prepares meals and schedules repairs for maintenance around the house. My clients also communicated that the housekeeper lives in the guesthouse, works more than the typical 40-hour workweek and that, periodically, the housekeeper’s sister helps out as well, for about 20 hours a week.

I explained to my clients that these changes now constituted them as employers, and that any person (housekeeper, butler, administrative assistant, personal chef, travel consultants, security consultant) would be considered their employee. I communicated the need for EPLI, and workers compensation, and said it was imperative for them to connect with an employment practice attorney to implement a plan of oversight and protection for the current, and any future, new hire.

In sum, families who employ a staff share many of the same risks that businesses are exposed to. If you are informed that your client has employees, then the client should procure relevant insurance protection for preservation of wealth, in the same way a business would protect revenue. Just because the hired help is a trusted friend of the family doesn’t mean that as an employee, the person won’t seek legal advice if he or she feels mistreated.

As a risk advisor, I know I am performing at my best when I uncover an exposure that was not previously planned for. And, after some initial resistance, the client, who now fully understands the risk and its impact, is generally very thankful for the advice we are so pleased to give.

This article was originally published in the February–April 2017 issue of Worth.

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