insurance

Does home insurance cover household staff?

Home insurance
Highlights
  • Household staff members can sue you for employment-related wrongful acts.
  • Typical homeowners insurance doesn't cover employment practices claims.
  • You may want an EPLI policy or endorsement for additional coverage.

Your personal assistant, nanny, housekeeper or pool cleaner may make your life easier, but they also represent your greatest threat for a high-priced lawsuit should your relationship sour. You'll want to have adequate insurance coverage.

"There's tremendous risk," says Teresa Leigh, whose eponymous New York-based household risk management company advises wealthy clients about household staff liability. "The uninsured are foolishly living with risk for no reason. There is no economic reason to do so."

The liability risks from household staff are numerous. Wrongful termination, discrimination, harassment -- sexual and otherwise -- and privacy breaches head the list. The propensity of some homeowners to hire undocumented workers, pay in cash and fail to check if contractors have workers' compensation coverage exposes them to an even broader vista of tax and employment practice claims.

Typical homeowners insurance won't cover much if any of it, regardless of the size of the home, according to Lilia Rocha, vice president of Momentous Insurance Brokerage, an agency based in Los Angeles.

"Personal and general liability coverage primarily deals with bodily injury and property damage," she says. "Unless there is a specific endorsement, a homeowners policy won't address these exposures."

And you need not belong to the yachting class to be at risk. Rocha says the bourgeoisie is increasingly exposed as well. "We see claims all the time for employment discrimination, and those occur whether there is one nanny in the household or 100 employees," she says.

How do you insure yourself against the nanny? Rocha says there are two general approaches, both of which must be tailored to your specific needs.

2 ways to protect yourself

A separate employment practices liability insurance, or EPLI, policy provides the highest limits -- typically $500,000 to $5 million and up -- and broadest coverage, including additional coverage such as wage/hour defense, harassment/discrimination of nonemployees, employment-related defamation and wrongful reference. Premiums start at $2,000 to $2,500 per year, according to Rocha.

A second option -- an EPLI endorsement to an existing personal umbrella or liability policy -- will typically add $250,000 toward claims by household staff for an average annual premium of $500 to $600.

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The advantages of a standalone EPLI policy are, as a commercial policy, it covers more risk, premiums are based in part on the number of employees and there is no maximum number of employees. Disadvantages include an average deductible of $25,000 and more detailed underwriting information requirements (read: loss of privacy).

The advantages of an EPLI endorsement: lower premiums, lower deductibles and less underwriting information compared to an EPLI policy. Disadvantages: Coverage is usually limited to named perils such as wrongful termination, harassment and discrimination, there is typically a maximum employee cap of four or five, and applicants either qualify or not, meaning that those with an unusually high public profile or unfavorable loss history may not qualify.

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