The frequency of – and exposures from – lawsuits by domestic help is a serious, growing threat. The number of claims filed in past years by maids, nannies, housekeepers, cooks and gardeners has increased dramatically. Claims include wage and labor issues, sexual harassment, personal injury, wrongful termination and discrimination. Potential lawsuits like these, from residence employees, are often overlooked by homeowners and are notably not covered by homeowners policies. Separate coverage is required as is protection against these claims from workers comp insurance and employment practices liability (EPLI).

While many states lack mandatory coverage laws, it is important for affluent families to have workers compensation insurance, whether it is required or not. Workers comp provides benefits for medical expenses and lost wages to employees injured on the job. Furthermore, it protects employers by exempting them from liability. Absent such coverage, the employer is exposed without limit to an injured employee’s medical expenses, lost wages and non-economic losses. In some states it mandatory to have a workers compensation policy and a disability policy in place if you employ anyone personally, meaning not through a business.

Employment-practices liability exposures include discrimination, negligent supervision or hiring, sexual harassment and wrongful termination. EPLI responds to employment-related suits brought by staff. In addition to paying for judgments against the employer, the insurance pays defense costs, and often public relations expenses. The U.S. Equal Employment Opportunity Commission (EEOC) reports that discrimination claims reached the second highest level ever in 2009 as more than $376 million was awarded to employees. The EEOC warned employers it would continue to protect employees with enforcement and litigation.

Many high net worth families underestimate such potential costs and misunderstand the affordability of protection. Consequently, they lack proper liability insurance and sufficient coverage. But the reality is that wealth attracts lawsuits. And aside from the financial impact, these individuals risk the stress of protracted legal proceedings and damage to their reputations.


 

Consider some real-life examples:

• A nanny working in the Hamptons sues her former employers, claiming that she was forced to eat only rice and noodles. Settlement: $55,000
• A housekeeper sues a professional baseball player, claiming sexual harassment. Settlement: $250,000
• A foreign domestic worker dies after being struck by a truck. Settlement: $1.2 million
• Bianca Cambeiro sued Alanis Morissette for $130,000 in 2013, claiming a hellish 12-hour night shift looking after the singer’s newborn son, emotional distress and unpaid wages. Settlement: Ongoing

Homeowners with domestic help are advised to have:

1.) An employment agreement with mandatory mediation and arbitration provisions as well as a confidentiality agreement
2.) EPLI insurance to cover them against lawsuits
3.) Workers comp coverage
4.) A high-limit personal liability policy on the home with an umbrella of at least $5 million
5.) A professional firm to screen the backgrounds of employees and contractors

These steps can be facilitated by an independent insurance advisor with access to insurance companies that specialize in serving clients with emerging and established wealth. As more wealthy families appreciate their liability exposures in today’s charged environment, they will understand the importance of working with a qualified insurance advisor to build a comprehensive program for liability protection.

EPLI Coverage at a glance:

 

• Sexual harassment
• Discrimination
• Wrongful termination
• Breach of employment contract
• Negligent evaluation
• Wrongful discipline
• Failure to employ or promote
• Deprivation of career opportunities
• Wrongful infliction of emotional distress
• Mismanagement of employee benefit plans

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