Employment practices liability insurance
Employment practices liability insurance (EPLI) is business liability coverage for claims arising from workplace practices, such as discrimination, harassment, wrongful termination, wrongful discipline and failure to hire or promote. It can pay covered defense costs, settlements or judgments for the business and other insured people, within the policy's limit, retention, exclusions and claims-made rules.
Also called: epli, employment practices coverage
EPLI is the coverage a business turns to when an employee or former employee alleges discrimination, harassment, wrongful termination, wrongful discipline or a refusal to hire or promote. It sits apart from workers' compensation insurance, which handles work-related injuries and illnesses, and from standard general liability insurance, which generally does not cover these employee claims, according to the NAIC (opens in a new tab). What an EPLI policy actually pays depends on its limit, retention, claims-made reporting rules, defense-cost treatment, exclusions and endorsements.
How an EPLI limit is used up in a claim
Many EPLI coverage parts are written on a claims-made basis with defense costs inside the limit, according to New York DFS filing instructions (opens in a new tab). That means legal fees and the settlement draw from the same pool of money. A New York DFS examination report (opens in a new tab) describes EPL limits of $250,000 for each wrongful employment act. Using that limit, with illustrative defense and settlement figures that are not an industry average:
Hover or tap a row to highlight it.
| Item | Amount |
|---|---|
| Defense costs | $80,000 |
| Covered settlement | $120,000 |
| Total covered loss ($80,000 plus $120,000) | $200,000 |
| Policy limit | $250,000 |
| Limit left, before any retention or adjustment ($250,000 minus $200,000) | $50,000 |
On a policy with a separate defense limit, the arithmetic changes because the $80,000 would not reduce the settlement money. If the claim is excluded, falls outside the policy period, is reported late or sits under a retention, the insurer's payment can be lower or zero.
Policy options and what each changes
There is no single standard EPLI form, so the policy's definitions and endorsements carry the weight. These are the settings that change what you can collect.
- Per-claim and aggregate limits. A policy can cap each claim and also cap the total for all claims in the policy period. The same DFS report describes a $1 million per-act limit with a $1 million annual aggregate for larger policies.
- Retention or deductible. You pay this amount before the insurance responds. A higher retention leaves more first-dollar risk with you and may affect premium, and that price effect is policy-specific.
- Defense inside or outside the limit. Inside, legal fees shrink the money left for a settlement or judgment. Outside, they are paid separately.
- Claims-made terms. The claim generally must be first made during the policy period and reported as the policy requires, and a retroactive date can exclude acts before that date. An optional extended reporting period may let you report covered claims after cancellation or nonrenewal, but it generally does not extend the window in which the wrongful acts can occur.
- Insured persons. Coverage can include the organization, directors, officers, employees or others named in the definitions.
- Third-party coverage. Claims by customers or vendors alleging harassment or discrimination by an employee are addressed separately in some policies and are not automatically included, according to the Maryland Insurance Administration (opens in a new tab).
Where you meet the term
EPLI is commercial coverage, not part of personal auto, home, renters, life, health or pet insurance. It can be a stand-alone policy, a coverage part or endorsement in a management liability, businessowners or commercial package policy, or a part sold alongside directors and officers or fiduciary liability.
You will see it on quotes and applications, binders, declarations pages showing the limit, retention, policy period and sometimes the retroactive date, insuring agreements, exclusions and conditions, endorsements and renewal notices. After a demand letter or charge arrives, it appears again in claim acknowledgments, reservation-of-rights letters and coverage position letters. A lender, landlord, customer, board, franchisor or contract partner may also ask whether the business carries EPLI before signing.
How Connecticut and New York treat EPLI
Neither state requires employers in general to buy EPLI. Connecticut employers must secure workers' compensation under Conn. Gen. Stat. § 31-284 (opens in a new tab), and New York employers must do the same under Workers' Compensation Law § 10 (opens in a new tab) and § 50 (opens in a new tab). Other than workers' compensation and motor vehicle insurance, Connecticut law does not require companies to carry liability insurance, according to a 2008 Connecticut General Assembly report (opens in a new tab).
New York does limit what an EPLI policy may pay. Coverage for discrimination claims based on disparate impact and vicarious liability is permissible in the circumstances described, while coverage for punitive damages remains against public policy, under DFS Circular Letter No. 6 (1994) (opens in a new tab). The same circular warns that an employer that does not diligently try to change employment procedures to discourage unlawful discrimination may be denied coverage.
Questions to ask an agent or insurer
- Is the coverage stand-alone or part of another policy, and what are the limit, aggregate, retention and defense-cost treatment? Defense costs may reduce the money available for a settlement or judgment.
- Is the policy claims-made, what is the retroactive date and what are the reporting deadlines? A late report, prior-acts issue or gap between policies can affect coverage.
- Which people and entities are insured, including owners, officers, former employees, leased employees and independent contractors? The definition of insured controls who gets defense and indemnity.
- Are third-party claims, administrative proceedings, wage-and-hour claims, retaliation, defamation, punitive damages and injunctive relief covered, excluded or endorsed? EPLI does not automatically cover every workplace allegation or remedy.
- If a claim or demand has already arrived, what notice must go to whom, and by when? Claims-made policies often require prompt notice and specific claim documents.
Frequently asked questions
These are the questions business owners raise most when EPLI shows up on a quote or a claim.
How is EPLI different from employers liability insurance?
Employers liability covers an employer's legal liability for injuries to employees and is commonly Part Two of a workers' compensation policy. EPLI concerns employment decisions and workplace practices rather than bodily injuries on the job, as the NAIC definitions (opens in a new tab) separate them.
Can a contract require my business to carry EPLI?
Yes. Even where state law does not require it, a contract, lender, landlord, board or business partner can make EPLI a condition of the deal. Ask the party for the limit and wording it expects before you request a quote.
Does a renewal application really matter for EPLI?
It does. Incorrect or incomplete answers about prior claims, threatened claims, workforce changes or known circumstances can affect underwriting, renewal terms or coverage.
What is EPLI called in Spanish?
Spanish-language insurance material in the US uses seguro de responsabilidad por prácticas laborales, sometimes shortened to EPL. The phrase responsabilidad laboral is also heard but can be confused with workers' compensation or employers liability.