Business Practices Liability Insurance

By Compuquotes Team on April 27th, 2008

Business Insurance

It's important for companies of every size to have sufficient business practices liability insurance in place. This type of insurance provides important protection for companies that might find themselves facing claims that the organization treated one or more employees in a manner contrary to that allowed by law. The most common areas of concern addressed by business practices coverage are workplace harassment and discrimination.

  • Protection Against Harassment and Discrimination Claims

Many business owners think that they don't need to carry business practices liability insurance because they are certain that they'll never treat employees in a discriminatory or harassing manner. There are very specific regulations governing what constitutes discrimination and harassment in the workplace, and even those with the best intentions sometimes find themselves acting and making decisions in a manner that goes against what the law allows.

  • Understanding Vicarious Liability

Many employers fail to realize is exactly what their responsibilities are when it comes to workplace harassment and discrimination. If an employee alleges discrimination or harassment, the employer has the burden of proof in defending the company against the claim, whether or not the claim is legitimate. The fact that alleged illegal actions were not encouraged or sanctioned by the company is not a sufficient defense against such claims.

To further complicate the situation, employers are responsible for maintaining workplaces that are free from harassment or discrimination. If managers, employees, and even vendors are engaging in discriminatory or harassing practices against employees, it's possible that the company can be held legally liable for paying damages to the injured parties. This is true regardless of whether the company's top management was aware of the situation.

In awarding damages in harassment and discrimination suits, the courts use a reasonable person standard to assess vicarious liability on the part of companies. If it is believed that a reasonable person with decision making ability should have known that the illegal actions were taking place, then the company is held liable.

  • Defending Business Practices Liability Claims

Whether or not harassment or discrimination actually took place, companies formally accused of such activities must incur the expense of defending themselves against the allegations. Even if damages are not awarded to the plaintiff, the cost of defending one's company against unfounded charges of harassment or discrimination can be very high. Without sufficient business practices liability insurance, the cost of defending the company against even an unfounded claim could be so great as to expose the company to the potential for financial ruin.

There is no way any business owner can be certain that his or her company will never face a business practices liability claim. No matter how carefully you select, hire, and train your employees, there is always a chance you will hire someone who might make a bad decision. There is also always a chance that you'll hire someone who is on the lookout for an excuse to file a lawsuit. It's impossible to predict every possible employee action. It is foolish to put one's business at risk by operating without business practices liability insurance.

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