Employment Practices Liability Insurance (EPLI): What It Covers, What It Does Not, and When a Small Employer Looks at It

Employment practices liability insurance, or EPLI, is business liability coverage for claims by employees, former employees and job applicants alleging that their rights as workers were violated. Typical claims include discrimination, sexual harassment, retaliation, wrongful termination, failure to hire or promote, wrongful discipline and defamation, according to the Insurance Information Institute (opens in a new tab). Standard general liability does not protect against these claims, according to the NAIC (opens in a new tab), and workers compensation pays for work injuries rather than employment disputes. Most EPLI is written on a claims-made basis, so the policy period, the retroactive date and the reporting rules decide whether a particular claim fits. Common exclusions include workers compensation, ERISA benefit claims, criminal acts, punitive damages and certain wage and hour disputes. If you have received a charge or demand letter, report it under your policy's notice instructions right away; the policy wording decides what is covered.

Is EPLI relevant to your situation?

Small employers usually look at EPLI at one of three moments: when they hire their first employees, when a contract asks for it, or when a dispute has already started. The coverage answers a specific question: if someone who works for you, used to work for you, or applied to work for you accuses the business of treating them unlawfully, what pays for the lawyer, and what pays if there is a settlement or judgment?

An accusation is not the same as liability. A charge filed with an agency or a demand letter from a lawyer is an allegation, and EPLI is built to respond to allegations, including ones that turn out to be groundless, within the policy's terms. That is also why timing matters so much: a policy bought after a dispute is already known generally does not reach that dispute.

What does EPLI cover?

EPLI covers claims by workers that their legal rights as employees have been violated, according to the Insurance Information Institute (opens in a new tab). Employment practices liability coverage is liability insurance for employers that covers wrongful termination, discrimination or sexual harassment involving current or former employees, according to the NAIC glossary (opens in a new tab). It is protection for employers against claims of discrimination, sexual harassment, wrongful termination or other employment-related claims, according to the California Department of Insurance (opens in a new tab).

Claim types a policy typically covers, according to the Insurance Information Institute:

• Discrimination based on age, race, gender and other factors
• Sexual harassment
• Wrongful termination, including constructive and retaliatory discharge
• Breach of an employment contract
• Emotional distress or mental anguish
• Failure to employ or promote
• Wrongful discipline or demotion
• Mismanagement of employee benefits
• Defamation
• Privacy violations
• Family and Medical Leave Act violations or similar laws

The coverage can pay legal costs, settlements and judgments, within the policy's limits and terms. Whether a particular claim is covered depends on the policy form, its endorsements and exclusions, and how the claim is worded.

What does EPLI usually exclude or limit?

Every policy has its own list. Common exclusions, according to the Insurance Information Institute, are National Labor Relations Act violations, Worker Adjustment and Retraining Notification (WARN) Act violations, OSHA claims, ERISA claims, claims under workers compensation laws, punitive damages and claims from criminal acts. Privacy violations caused by a computer breach may also be excluded, which is a gap that cyber insurance for a small business is designed to address.

Wage and hour claims, such as unpaid overtime, are another common exclusion or sublimit, meaning a smaller cap inside the main limit. Claims tied to acts before the retroactive date, or to circumstances you knew about before the policy began, are usually outside the policy too. Read the exclusions section and ask the agency which of these appear in the form you are offered and whether any can be added back by endorsement.

How is EPLI different from other employer coverage?

Employers often carry several policies with similar-sounding names, and each one pays for a different kind of loss.

• EPLI pays for claims alleging wrongful employment practices, such as discrimination, harassment, retaliation and wrongful termination.
• Workers compensation pays an injured employee's medical expenses, rehabilitation costs and lost wages for a work injury, and nearly all states require employers to carry it, according to the NAIC (opens in a new tab). If you are deciding whether you need it at all, see do you need workers comp for one employee.
• Employers liability, usually written with workers compensation, covers an employer's legal liability for employee injuries that fall outside the workers compensation benefit system. It is classified separately from employment practices liability in the NAIC property and casualty line descriptions (opens in a new tab).
• General liability covers claims by outside parties for bodily injury, property damage and personal and advertising injury. Standard commercial general liability does not protect against claims of sexual harassment, wrongful termination, failure to employ or promote, or race and gender lawsuits, according to the NAIC. For more on how general liability fits with other business policies, see general liability vs professional liability insurance.

Does a current charge or demand fall within the policy period?

Most EPLI policies are claims-made, according to the Insurance Information Institute. A claims-made form pays only if both the event that triggers the claim and the claim itself are submitted during the policy term, according to the NAIC glossary (opens in a new tab), subject to the form's own wording.

A retroactive date adds a second limit. It sets how far back the conduct can have happened for the current policy to respond. Conduct before the retroactive date is generally outside the policy even if the claim arrives during the policy period, while a policy with an earlier retroactive date can reach older conduct that is reported now.

Reporting rules matter just as much. An extended reporting period, often called tail coverage, is an endorsement that covers claims reported after a claims-made policy ends, subject to the same retroactive date, and it can run for a set period or indefinitely, according to NAIC Issue Paper No. 65 (opens in a new tab). It matters most when a business closes, sells, or changes insurers. When you switch carriers, ask whether the new policy keeps your existing retroactive date, because a later date can leave a gap for past conduct.

If a former employee contacts you about something that happened months ago, three dates decide where it lands: when the conduct happened, when the claim was first made, and the retroactive date on your policy. Write all three down before you call your agent.

Will EPLI pay for a lawyer?

EPLI can pay defense costs, settlements and judgments, subject to the policy. How the defense works depends on the form. Under a duty-to-defend policy, the insurer manages the defense. Under a non-duty-to-defend policy, the business manages the defense and the insurer reimburses covered costs, according to the Insurance Information Institute (opens in a new tab).

Defense costs can also sit inside the policy limit, which means every dollar spent on lawyers reduces what is left for a settlement, or outside it, and a retention or deductible can apply to defense costs as well. Before a claim, ask who chooses defense counsel, whether defense costs reduce the limit, whether the retention applies to defense, and whether the insurer must consent to a settlement.

What does the EEOC process involve?

Many employment claims start as a charge with the U.S. Equal Employment Opportunity Commission (EEOC) or a state agency rather than a lawsuit. In general, a charge must be filed within 180 calendar days of the alleged discrimination, and the deadline extends to 300 calendar days if a state or local agency enforces a law against the same kind of discrimination, according to the EEOC (opens in a new tab). For age discrimination, only a state law and agency extend the deadline, not a local law alone. Federal employees and applicants follow a different process and generally must contact an agency EEO counselor within 45 days.

Federal laws reach employers above certain sizes. Title VII and the Americans with Disabilities Act apply to employers with 15 or more employees, and the Age Discrimination in Employment Act applies to private employers with 20 or more employees, counted over 20 or more calendar weeks in the current or prior year, according to the EEOC's threshold guidance (opens in a new tab). The EEOC handles charges of discrimination based on race, color, religion, sex, national origin, age and disability, and retaliation, according to its charge filing fact sheet (opens in a new tab).

Can state law reach a smaller employer?

Yes, and that is where small businesses below the federal thresholds can still face claims. State laws set their own employer sizes, protected categories and filing procedures. California is one example: it is illegal for employers of five or more employees to discriminate against job applicants and employees, and harassment is prohibited in all workplaces, even those with fewer than five employees, according to the California Civil Rights Department (opens in a new tab). Harassment protection there also extends to unpaid interns, volunteers and independent contractors.

Other states draw their lines in different places. Check your own state's fair employment agency for the employer size, protected categories and deadlines that apply to your workforce.

What affects EPLI cost and underwriting?

EPLI cost depends on factors such as the number of employees and whether the company has been sued in the past, according to the NAIC (opens in a new tab), and the type of business also affects price, according to the Insurance Information Institute. Other details commonly discussed with an agent include turnover, locations, use of contractors or leased workers, prior claims or known circumstances, the retention, the limits requested, the defense-cost structure and whether wage and hour coverage is excluded or sublimited. A quote based on your own facts is the only reliable number.

Applications usually ask about the practices that the Insurance Information Institute recommends for reducing employment claims:

• Written workplace policies, posted and included in an employee handbook, with a process for reporting concerns and responding to them
• Training for managers and employees on lawful workplace practices
• Careful, nondiscriminatory screening of job candidates
• Written job expectations for every role
• Regular performance reviews with written records
• Documentation of employment decisions, complaints, investigations and responses

Expect questions about prior charges, demand letters or lawsuits as well. Answer them accurately, because known matters affect both eligibility and what the policy will cover.

What should you do after receiving a charge or demand?

A charge or demand letter starts several clocks at once: the agency's, the policy's and sometimes a contract's. Work through these steps:

Time limits for filing an EEOC charge generally will not be extended while you try to resolve a dispute through another forum, according to the EEOC (opens in a new tab), and the same urgency applies to your policy's notice clause. A late notice can put coverage at risk under a claims-made policy.

Is EPLI required?

There is no general requirement that every employer carry EPLI. A contract can require it, and lenders, investors, buyers in an acquisition, franchisors, staffing arrangements, clients and landlords sometimes ask for it. The contract's own wording sets the requirement, including the limits and terms it calls for.

Without a contract requirement, EPLI is a decision about risk. Insure against things you would not be able to pay for on your own, and consider what kinds of lawsuits could damage your business, according to the SBA (opens in a new tab). EPLI can be bought as a stand-alone policy or added as an endorsement to a business owners policy (BOP), and coverage in a package policy may come with more limits and exclusions, according to the Insurance Information Institute (opens in a new tab). It can also be part of a broader management liability package.

Questions to ask an agent

• Is this policy claims-made, and what is the retroactive date?
• What counts as a claim, and does a demand letter or agency charge qualify?
• How and how quickly must I report a claim or a circumstance?
• Does the insurer have a duty to defend, and who picks defense counsel?
• Do defense costs reduce the policy limit, and does the retention apply to them?
• Which exclusions apply, and is there any wage and hour coverage or sublimit?
• Are former employees, applicants, contractors, leased workers and volunteers covered?
• Is an extended reporting period available, and on what terms?
• If I switch insurers, will the new policy keep my retroactive date?
• Is this a stand-alone policy or an endorsement to my BOP, and what changes between the two?

You can find an insurance agency that handles business coverage in the Riskado agency directory, and confirm the agent's license with your state insurance department (opens in a new tab). Our guide on how to choose an insurance agent covers what to ask in that first conversation.

Frequently asked questions

Can I buy EPLI after an employee makes a claim?

A new policy generally will not reach a claim or circumstance you already knew about, because claims-made policies tie coverage to the retroactive date and to what was known when the policy began. Applications ask about prior charges and demands for that reason. Report a current matter to any policy you already have; new coverage is for future claims.

Does EPLI cover wage and hour claims?

Wage and hour disputes, such as unpaid overtime, are commonly excluded or limited by a sublimit. The wording varies by insurer and form. Ask the agency what the form says and what any sublimit is.

Does EPLI cover claims from former employees and job applicants?

Yes, policies typically respond to claims by current employees, former employees and applicants, according to the Insurance Information Institute. Whether contractors, leased workers or volunteers are included depends on the policy's definitions. Ask the agency to show you the definition of an employee in the form.

Does a business owners policy include EPLI?

Not automatically. EPLI can be added to a BOP as an endorsement, and coverage in a package policy may carry more limits and exclusions than a stand-alone form. Check your declarations page for an EPLI endorsement and its limit.

Your next step

Find your current business policies and look for an EPLI policy or endorsement. Note the policy period, the retroactive date and the notice instructions. If you have a charge or demand in hand, report it to your insurer today, then take the questions above to a licensed agent.