Employment Practices Liability Insurance (EPLI) for Small and Medium Sized Businesses

Employment Practices Liability Insurance (EPLI) is a type of liability insurance that covers a business for wrongful acts that occur throughout the employment process. According to Trusted Choice, over the last 20 years employee lawsuits have risen roughly 400 percent. Wrongful termination suits have increased more than 260 percent during that same time period. Additionally, according to a study done by Advisen, only 23 percent of companies with fewer than 100 employees have a Employment Practices Liability Insurance Policy in place. This means 77 percent of companies in the United States who have fewer than 100 employees are exposed to the full liability of an employment related lawsuit. In many cases, a small business is forced to close when faced with an employment related lawsuit. Adding an EPLI Policy to a businesses Business Owner’s Policy (BOP) is the most wise decision to properly protect most businesses.

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The most common way a business faces a lawsuit that causes a employment lawsuit is through wrongful termination, discrimination, sexual harassment, and retaliation. Far too many business owners think their employees will never sue them. This is a thought that sinks far too many business owners. Especially considering how an EPLI policy can be added to most Business Owners Policies (BOP) for a relatively small amount compared to the costs of an actual lawsuit.

An Employment Practices Liability Insurance Policy (EPLI) is written on a claims-made basis. This means the policy will cover the business depending upon when the lawsuit is filed, not based upon when the action within the lawsuit occurred. Some types of insurance policies are sold on an Occurrence basis, but not most EPLI Policies. No matter which type of policy you go with, it is important to make certain, the business owner and management know exactly what type of policy they are purchasing. It is equally important to know exactly what is and is not covered by these policies.

What is Covered by an EPLI Policy?

There are many things that are and are not covered by an EPLI Policy. Some common types of lawsuits that are covered by an EPLI Policy are wrongful termination, retaliation, sexual harassment, discrimination, breach of contract, negligent evaluation, failure to promote, wrongful discipline, deprivation of career opportunity, wrongful infliction of emotional distress, and even mismanagement of employee benefit plans. Not all policies will cover all of these lawsuits. Each carrier has their own specific exclusions. It is important to develop a working relationship with your insurance agent to fully understand what is and what is not covered by each particular policy. Working with an independent insurance agent is a great way to get unbiased advice from an insider. A captive agent will only be able to tell you the positive sides of the policy their carrier offers. An independent agent can offer you coverage from multiple carriers and give you inside knowledge about the positives and negatives of partnering with each carrier.

What is not Covered by an EPLI Policy?

An EPLI Policy covers many forms of employment risks and the costs associated with related lawsuits. Each carrier has their own specific exclusions related to all insurance policies. This is especially true when it comes to an Employment Practices Liability Insurance Policy. Some common exclusions include violations of the National Labor Relations Act, the Worker Adjustment and Retraining Notification Act, Occupational Safety and Health Act (OSHA), and the Employee Retirement Income Security Act (ERISA). Some carriers include exclusions for violations of the states individual workers compensation laws. In addition to breaking laws, most EPLI Policies do not cover punitive damages.

How can a Business Limit EPLI Lawsuits?

When a business decides to purchase an EPLI Policy, there are many elements of the business that a carrier takes into account when they determine what to charge the business for insurance premium. In an ideal world, a business will never face a lawsuit of any kind. Limiting the frequency and severity of all insurance claims is the best business practice. Hiring experienced human resource professionals, developing a thorough onboarding program for new hires, and implementing a well-documented safety program are all excellent ways to lower insurance claims of all types. These programs can also help limit employment related lawsuits.

In addition to limiting all types of insurance claims, there are several things a business can focus on that can limit the business facing an employment related lawsuit.

  • Hire Selectively
  • Thoroughly Educate Management and Staff
  • Establish Clear Policy and Procedures
  • Provide Clear and Concise Job Descriptions
  • Provide ongoing Employee Reviews
  • Document Everything

Hire Selectively

When it comes to hiring selectively, it is important to thoroughly screen all employees. There are a number of ways to do this. A business can hire experienced Human Resource Professionals Internally or outsource this duty. If the business has the funding, it may be best to outsource with the help of an internal human resource professional. No matter how your business decides to approach hiring, it is important to find and promote the right people.

Thoroughly Educate Management and Staff

If a business is concerned about limiting an employment lawsuit, focusing on training management and staff should be at the top of the priority list. Some of these topics may not be comfortable to discuss, but it is necessary to discuss these topics in order to prevent an employment lawsuit. Including diversity and sensitivity training as part of your ongoing training plan is worth considering.

Establish Clear Policies and Procedures

It is equally important to create clearly written policies and procedures for all divisions, departments, teams, and individual employees. Post these policies in a handbook you give to all new hires and some of the highlights should be posted in common areas where all employees have access to them. In addition, it is important to create a formal policy for how an employee can report concerns and a way for management to respond.

Provide Clear and Concise Job Descriptions

One thing that is common in many employment lawsuits is expectations that are in very different places from the perspective of the company compared to the expectations of the employee. If you can develop clear and concise job descriptions and expectations for all employees, it will go a long way towards preventing any and all lawsuits.

Provide Ongoing Employee Reviews

In an effort to open communication with all employees, employee reviews should be held regularly. These reviews should be held regularly in order to keep everyone on board with what is expected of them and what is expected of the company. In the past, these reviews would be done on a yearly basis. In today’s business environment, it is important to have these conversations more frequently. The conversations do not need to be weekly or even monthly, but they need to be more frequent than once a year. When managers meet with employees, it is important to ask open ended questions and to actively listen to the concerns of the players.

Document Everything

Each business will find a different way to prevent employment lawsuits. As a business develops the best plan to prevent employment lawsuits, it is important to document every step of the process. When a lawsuit does occur, this documentation may be the difference between a lawsuit being a slight hiccup and something that causes the business to close its doors permanently.

8 interview questions that could cause an EPLI Claim.

When interviewing candidates for an open position there is a lot of information a hiring manager is trying to find out about an applicant. No matter what industry you are hiring for nothing is more important than a good fit. Personality and communication skills go a long way towards determining if someone is a good fit for your agency. As you are narrowing your search to a few good candidates, more personal questions seem like the way to go about finding out if one candidate can rise up above the other. Making sure your hiring managers know what is and what is not acceptable can save your business from the damages of an EPLI Claim.

EPLI stands for Employment Practices Liability Insurance. This is an insurance policy that covers a business from the legal costs that arise from lawsuits related to the employment process. The coverage can include lawsuits that result from issues with hiring, firing and harassment in the workplace. These types of lawsuits have been on the rise for more than two decades. For this reason it is extremely important for hiring managers to be crystal clear what they can and what they cannot ask in an interview.

Here are 8 examples of questions to never ask when going through the hiring process.

  • What is your religious affiliation?
  • What is your ethnicity (or race, or color)?
  • How old are you?
  • Are you married?
  • Do you drink (or smoke) socially?
  • Do you have children or plan to?
  • Are you pregnant?


What is your religious affiliation, may seem like an innocent question until you ask it to someone who may take offense to it. Many people are religious and the hiring manager may bring up a question like this just as a way to relate to someone on a personal level. No matter what your intentions are with asking questions about religion it is always best to keep them out of the workplace.

What is your ethnicity (or race, or color), is never an appropriate question to ask. In 2016 it is very likely that a hiring manager will interview an international person at some point in time.  Even a question as simple as what country are you were you born can be misunderstood. It should not be brought up in any way shape or form.

Age is not a question that can be asked in the hiring process. Regardless of whether the person in question is young or old, bringing up age is not an acceptable part of any job interview. EPLI Lawsuits in relation to age are one of the most common forms of lawsuits filed.

A persons Marital status is not an acceptable question to be a part of the hiring process. As long as a person shows up and is able to do the job they are being hired for their marital status has nothing to do with their relationship with their employer.

Questions about lifestyle choices are not allowed in the hiring process. The most common place where this becomes an issue is asking about peoples habits in relation to drinking and smoking. after the hiring process this can only be an issue if there is reason to believe the person is coming to work under the influence or that the employees drinking or smoking habits are interfering with their performance at work.

Asking about children and if a candidate plans to have children is a slippery slope. In many cases this is just simple water cooler talk among people in their 20’s and 30’s. If a hiring manager has a child they may find that asking about family members or children is a normal part of daily conversation because they dominate so much of their life. This may be an issue the potential employee has a problem with. If the candidate is trying to have children, but can’t this may be a stressful personal question they are not comfortable talking about. It has the potential to be interpreted in the wrong manner no matter how innocent the question is. These types of questions are best to always be kept off the table.

With todays’ litigious society, the chances you will face an EPLI Lawsuit go up every year you stay in business. The smaller the business and the longer the employee has been with only make the damage more severe when a claim does occur. Small businesses today are beginning to purchase this coverage more often, but still a majority of businesses with less than 100 employees still choose not to purchase this coverage. This is a decision that can save them a few hundred dollars per year on the front end, but when a lawsuit does happen it may cost them thousands on the back end if the business is not covered.

What is EPLI Insurance?

EPLI is an acronym for Employment Practices Liability Insurance.  EPLI is a form of professional liability insurance designed to specifically address the unique risks associated with hiring, employing, and terminating employees. The number of lawsuits filed by employees against their employers is on the rise. Employment Practices Liability Insurance coverage is a safeguard for employers in today’s litigious society. It provides legal protection for the business, the owners, the officers, the directors, and the other employees.

Some common types of lawsuits EPLI covers include:

  • Employee Discrimination
  • Wrongful Termination
  • Age Discrimination
  • Racial or Gender Discrimination
  • Breach of Contract
  • Sexual Harrassment
  • Emotional Distress

Again, anyone can end up filing a lawsuit and unfortunately anyone does. These lawsuits do not have to be legitimate in order to rack up enormous costs to your business. The two main costs come in the form of defense costs and the time it takes you away from your business to fight the accusations in court.  Even though lawsuits are on the rise still seven out of ten businesses do not buy EPLI coverage. Of those that do not buy Employment Practices Liability Insurance coverage six in ten businesses think they are covered for this type of claim under some other type of insurance. Many think they are co9vered under their General Liability Policy.  Some important things to think about when deciding to buy EPLI coverage are that businesses are three times more likely to be sued by an employee than to experience a fire. The average out-of-court settlement for an Employment Practices Liability Insurance claim is about $40,000. If the case actually goes to trial, the average award amount is $218,000, and nearly 10% of these cases can result in an award of more than $1,000,000. Again, the average cost to defend a wrongful termination or employment case is about $45,000. Employees file over 90,000 charges per year with the U.S. Equal Employment Opportunity Commission and employees win 70% of cases that go to a jury trial.

Policy language within an EPLI contract can vary significantly between insurance companies. Some polices will include specific policy exclusions or limitations on coverage during certain events such as a merger, an acquisition, a major restructuring, or a reduction in workforce. Many insurance companies also utilize a common clause within an Employment Practices Liability Insurance policy known as a Hammer Clause. This clause gives the insurance company the right to tell the insured that it wants to settle a claim for a set amount of money. The business must either accept the advice of the insurance company and settle the claim, or it runs the risk of having to pay the claim if the court rules in favor of the employee. These issues make it crucial to have a strong relationship with your agent. Like many types of insurance, you rarely think about it until you need it. Taking a little more time to make sure you are covered correctly can save you company thousands when a lawsuit does happen.

EPLI (Employment Practices Liability Insurance)

What you need to know about Employment Practices Liability Insurance (EPLI)

Employment Practices Liability Insurance


The Need

I’ve seen numerous places that the Equal Employment Opportunity Commission (EEOC) receives around 100,000 charges of employment discrimination a year — hardly a drop in the bucket.  Employment discrimination claims are only one type of claim covered by EPLI Insurance. Furthermore, businesses are three times more likely to be sued by an employee or former employee than to experience fire damage (something nearly every business insures against occurring). In addition to heavy defense costs, the average compensatory award in a federal employment discrimination case is around $500,000 and growing. This excludes defense costs and punitive damages. In summary, EPLI related claims are relatively common and are growing in frequency. Such claims can lead to a devastating liability for businesses.

Basic Overview

As similarly described in resources devoted to the ins and outs of insurance coverage, like www.IRMI.com, Employment Practices Liability Insurance is a type of liability insurance covering wrongful acts arising from the employment process. EPLI provides protection against many kinds of employee lawsuits, including claims of:

Wrongful termination
Sexual harassment
Breach of employment contract
Negligent evaluation
Failure to promote
Wrongful discipline
Deprivation of career opportunity
Wrongful infliction of emotional distress
Mismanagement of employee benefit plans

The most frequent types of claims covered under such policies include: wrongful termination, discrimination, sexual harassment, and retaliation. The policies generally cover management personnel, directors and officers, and even employees as insureds. The most common exclusions are for bodily injury, property damage, and intentional/dishonest acts. Employment Practices Liability Insurance policies are written on a claims-made basis. The forms contain “shrinking limits” provisions, meaning that insurer payment of defense costs—which are often a substantial part of a claim—reduce the policy’s limits. This approach contrasts with commercial general liability policies, in which defense is covered in addition to policy limits. Although EPLI is available as a stand-alone coverage, it is also frequently sold as part of a management liability package policy.



Employment Practices Liability Insurance Coverage can vary substantially among insurance carriers. Some of the most important considerations include whose acts are covered which is beneficial to be as broad as possible. This is especially beneficial to independent contractors, a company’s board of directors (and it’s affiliates) and leased or seasonal employees and volunteers. The definition of which claims are covered can vary. It is beneficial to the insured for the definition to be as broad as possible. Another relevant clause related to EPLI coverage is the “hammer clause”. A strict hammer clause means an insurer must seek an insured’s approval prior to accepting a settlement offer. This requires the insured to be responsible for all additional costs which accrue above the cost of an offered settlement. Typically the insurer recommends the insured accept. A soft hammer is sometimes available which is similar to the hammer clause. Except that the insured and insurer split the costs above the cost of the settlement at some agreed upon percentage (often 50/50). Retention limits and limits of insurance are also relevant. There are often higher deductibles/retention associated with EPLI claims than other types of insurance. Retention levels and limits of insurance substantially affect the cost of EPLI policies.

Claims Examples

The Hartford, one of the leaders in providing Employment Practices Liability Insurance, provides numerous claims examples. One example includes a retaliation claim where an employment offer was rescinded. The claimant alleged the offer was rescinded due to complaints about sexual harassment where as the employer claims the offer was rescinded due to the applicant’s overreaching in the hiring process. The case didn’t settle due to the applicant’s hefty demands. While the insured prevailed at trial with a defense verdict, they were left with $254,000 in defense costs (which are generally covered under EPLI policies). As with many examples, the insured may prevail in the claim (or make a modest settlement), but defense costs often run up into the hundreds of thousands. Without adequate EPLI insurance, that could lead to devastating liability for insureds (or lead to ill-advised settlements to avoid defense costs).