Who Is Employment Practices Liability Insurance For?

In today’s litigious business environment, there are many instances in which employment practices liability insurance is required.

Employment-related risks start the moment a job applicant walks in the door or visits the “Careers” section on your website. There are many illegal interview questions, and the applicable law may vary among different office locations.

For example, some local and state governments have passed “ban the box” legislation that prohibits questions about criminal history to prospective employees, yet in some other areas, these questions are perfectly fine to ask.

The truth of the matter is that you should have EPL insurance if your business has employees. No business is safe from employment-related lawsuits, so it is always best to be prepared for the worst.

During employment, rogue managers are often an issue. If someone makes an inappropriate comment within earshot of an offended worker, the company is usually liable. Most EPL policies cover these incidents.

So, if you’re still asking whether you need EPL or not, the answer is that you probably do.

Does your business perform any of the following actions?

• Hire or fire employees
• Demote or promote employees
• Offer raises to employees
• Communicate to or about employees
• Manage benefits for employees

If so, then you need EPL coverage.

Examples of Industries That Need EPL Coverage

As mentioned, pretty much any business that has employees should have an EPL policy, but here are some specific industries in which EPL is especially important.

Tech Industry

The tech industry has seen a lot of ups and downs in recent years, with massive numbers of new hires in the pandemic years followed by record layoffs in 2023 and 2024. While EPL insurance is important for most industries, the protection is extremely important in the tech world.

Entertainment Industry

There has been no shortage of high-profile harassment and wrongful terminations in the entertainment industry, especially in Hollywood. Movements such as the #MeToo have led to a rise in awareness and publicity of these issues as well as a large number of EPL claims. 

Healthcare

Several healthcare and pharmaceutical companies have made headlines recently for discrimination lawsuits. Especially since the COVID-19 pandemic, there have been a slew of EPI claims and lawsuits related to vaccination, illness, and wrongful termination.

Customer Facing Industries

For customer-facing industries, it is crucial to have a third-party EPL policy. Just as an employee can make a claim against an employer for discrimination, a customer or third party can sue an organization for discrimination by an employee. For example, if a customer is mistreated or harassed by an employee and sues the company, a third-party EPL policy can cover this.

Why Do You Need EPLI?

Employment practices liability insurance protects your business from a broad range of employment-related claims. There are many reasons why the number of harassment claims seems to be constantly increasing; it’s certainly not a coincidence and correlates with broader societal changes.

Social media has also provided a voice to the harassed and has made it easier for those who have been harassed at work to speak out about it. The #MeToo Movement is a good example of this.

In addition, LGBT and transgender communities are continuing to grow and assimilate into the mainstream, causing people from these groups to commonly encounter discrimination and harassment in the workplace.

According to a preliminary 2018 report on sexual harassment claims by the EEOC, sexual harassment charges increased by more than 12% and sexual harassment lawsuits filed by the EEOC’s attorneys increased by 50% from the previous year.

Employee lawsuits are on the rise, and even if you’re in the right, defense fees can still be staggering. That’s why you need to protect your business with employment practices liability insurance no matter what.

What Does EPL Insurance Cover?

Generally speaking, employment practices liability policies will cover the costs of defending your company against lawsuits, settlements, and judgments due to poor employment practices. As long as the act that was committed is not illegal, the legal costs will be covered regardless of whether the case is won or lost.

Employment Practice Liability risk is high for new hires.

Let’s face it: new hires are a risk to your business. While the rewards often outweigh these risks, it’s important for business owners to be aware of what they’re getting themselves into. Both new and existing employees must be trained on employee workplace guidelines. Employment practice lawsuits can devastate both your reputation and finances. Small to medium-sized businesses can pay an average of $160,000 to settle this type of lawsuit. EPLI coverage protects you from paying these high out-of-pocket costs. It can cover any legal defense costs, including a settlement or judgment if an employee presents a valid claim.

• Some of the risks include employment claims when:
• A new hire alleges some sort of discrimination
• Claims wrongful termination
• Feels they’ve suffered some work-related grievance

In some instances, E&O claims aren’t even related to money. A claim can be made for less tangible issues, such as loss of reputation or emotional distress.

Types of Employment Practices Liability Insurance Claims

Let’s take a closer and more detailed look at the types of EPLI Insurance claims that a quality policy should be able to cover:

• Retaliation: In a retaliation claim, the employee alleges that they are being harassed or discriminated against as punishment for speaking out about issues occurring to others in the workplace. Retaliation claims are often related to pay cuts or demotions that had nothing to do with the employee’s overall performance. Employees often claim retaliation when they have uncovered or shed light on some type of workplace situation that the employer did not want to be known.
• Failure to promote: While there are certainly many different types of claims related to a failure to promote, recent trends show that many of these types of claims are tied to disability discrimination. Employees often believe that they are being passed over for promotions because of disabilities such as deafness, blindness, or even a medical condition such as diabetes. Failure to hire claims are similar and also very common.
• Harassment: While there are many types of harassment claims that employees can file against your company, the most prevalent type of workplace harassment is of a sexual nature. Sexual harassment entails unwanted sexual advances both physical and verbal in nature. It could also include management or other coworkers requesting sexual favors or services in exchange for promotions. Workplace harassment claims have been steadily rising over the last few years. In 2019, the Equal Employment Opportunity Commission (EEOC) reported a total of 11,283 sexual harassment complaints.
• Defamation: In defamation claims, employers are accused of making false statements that damage the employee’s reputation at work in some way.
• Mismanagement of employee benefits: Employees can also sue if mistakes were made in the management of benefits such as retirement and healthcare plans. It’s good to have a fiduciary liability policy for these types of cases as well since it protects any of your employees in charge of benefits who might have made a mistake that led to the claim.
• Negligent supervision of employees: Negligent supervision means that the employer has allowed dangerous or harmful conduct to occur in the workplace. Negligent supervision claims can be related to many issues, some of them being loss of profits and destruction of property.
• Negligent evaluation: In a negligent evaluation claim, the employee believes that their performance was unfairly evaluated and that the negative evaluation does not reflect the quality of the employee’s actual performance.
• Invasion of privacy: In an invasion of privacy claim at work, employees believe that their rights are being violated through various surveillance tools within the office such as computer programs that monitor employee actions and security cameras throughout the office. These types of claims are also on the rise and are becoming very common.
• Discrimination: There are many types of discrimination that can occur at work; discrimination based on race, religion, sex, disability, age, equal pay, national origin, genetic information, pregnancy, and more. Age discrimination claims have been rising steadily as America’s workforce has been getting older.
• Wrongful demotion or disciplining of an employee: Wrongful demotion can be very similar to negligent evaluation. Often, wrongful demotion claims are related to discrimination as well, when employees believe that they are being demoted for unlawful reasons that have nothing to do with their performance at work.
• Infliction of mental or emotional distress: Intentional infliction of emotional distress occurs when the employer purposely causes emotional distress to employees by way of some type of conduct that is not fit for the workplace. Again, these types of claims can be intrinsically tied to claims of harassment, discrimination, and other types of inappropriate workplace conduct.
• Wrongful termination of an employee: In a wrongful termination claim, employees believe that they were fired unlawfully, meaning that they lost their job for reasons that have nothing to do with their performance. When terminating employees, employers must make sure that a breach of the employment contract has occurred. Wrongful termination claims are rarely won by employees, but they can be long and expensive regardless of the outcome.
• Illegal Background Check: Based on the Fair Credit Report Act (FRCA), there are standards that need to be respected by employers or HR personnel who perform employee screening procedures. If your company was not given written consent to check a would-be employee’s credit report or criminal background, you can be sued.
• Pregnancy and Lactation Accommodation: According to the Pregnancy Discrimination Act, pregnant employees must be accommodated and allowed to work as long as they are able to perform their duties. If a pregnant employee is fired, there were surely be a lawsuit coming. Also, the Fair Labor Standards Act (FLSA) requires companies to provide breaks for nursing mothers who need to breastfeed during the workday. The company must also provide a private and clean area of the office for this, which cannot be the bathroom.
• Deprivation of Career Opportunity: This occurs when an employee claims they weren’t promoted to a position for which they were qualified. Claims may also arise when an employer fails to provide resources that will advance an employee’s career. For example, they we’re allowed to take on additional training.

What’s Not Covered with Employment Practices Liability?

As we previously mentioned, if the act that your company is being sued for is an illegal one, then the EPL policy will not cover your costs.

However, there are other losses and claims an EPL policy will not cover, some of which include:

• Penalties and punitive damages
• Criminal and civil fines
• Wages you should have paid
• Alleged injuries to employees
• Liabilities for acts of employer intentional or dishonest wrongdoing
• Litigation related to unemployment benefits
• Damage caused to employee property
• Disputes regarding workers’ compensation claims

For more on what EPL does and doesn’t cover, read our guide on typical EPL claims examples.

What Does EPLI Cost?

Like any other business coverage, there are many different factors that will determine the cost of your EPL insurance, including the following:

Size of the company

Perhaps the most logical factor correlated to EPL risk is organizational size. All things equal, the more employees a company has, the more likely it is that one of the employees will find some discriminatory basis for a lawsuit.

HR Procedures

However, insurers won’t just look at the size of the company. They’ll also consider the strength of your HR policies and procedures as a means to prevent claims and reduce risks. In reality, many insurance underwriters are looking intensely at your organization’s investment in HR talent, policies, and procedures. Organizations that have not displayed this commitment represent a more significant risk and will be charged more than their peers, or worse off be denied coverage altogether. EPL pricing is an exercise in evaluating the strength of HR and its policies and procedures, not simply a tiered employee count approach.

Claims History

Naturally, your claims history will affect premiums as well. If you haven’t had any claims over the last three years, your premium will be lower.

Policy Deductible

Most EPLI policies will have a deductible. A deductible is the amount of money the company will have to pay out of pocket before the policy kicks in. Lowering the deductible will mean increasing the premium.

Policy Terms

Most insurance policies will have standardized policy terms, and won’t differ dramatically depending on which carrier is writing the policy. However, EPLI policies can vary significantly, given how complex and volatile the risks they cover are. It’s crucial that you carefully read your policy, and consult a good broker to ensure that you are adequately protected.

For more information, read our full guide on EPL cost.

Reducing the Cost of Your EPLI Policy

Companies looking to save on EPLI will need to tackle potential employment practices’ liability risk factors proactively. Empowering your HR department to deal with potential issues adequately is a crucial step in combating EPLI claims. It’s also essential to underline internal protocols and procedures for both the hiring and firing of employees. If you have a uniform, and above all, fair hiring policy, you can expect fewer lawsuits from angry employees and snubbed candidates.

Pay your entire premium upfront. You can typically pay your premium in monthly or annual installments. It might be tempting to go with a smaller monthly payment, but consider paying the full premium instead. Businesses can usually save money this way because many insurers offer discounts on annual premiums.

Proactively manage your risks. If your business has no claims history, expect to pay lower insurance rates. An effective way to do this is to create a comprehensive risk management plan.

Tips to lower your premium costs include:

• Provide harassment prevention training
  
• Maintain a human resources department
  
• Form internal protocols for hiring and firing employees
  
• Respond promptly to claims of harassment
  

Additionally, providing your employees with harassment prevention training can go a long way to making a more pleasant and less risky workplace for everyone.

Eligibility Requirements

Most businesses are eligible for employment practices liability insurance, but not all.

A key component to guarantee that your business will qualify for EPLI coverage is having an in-depth anti-discrimination policy. Expect frequent revision of the employee handbook, and post-incident investigation practices when applying for an EPLI policy. These are just some of the major items that insurance companies expect an employer to prepare upon review.

Businesses that may experience difficulty securing EPL coverage typically have neglected their human resources policies on key matters such as employment at will, discrimination, sexual or workplace harassment, and ensuring accommodations for disabled employees. 

Here are some circumstances that would make you a bad candidate for EPLI insurance:

• You have no human employees
• There is no use of employment applications or conducting of periodic employee appraisals
• Over the past three years, have been the target of prior employment practices lawsuits

Claims-Made vs. Occurrence Policies

When it comes to employment practices liability insurance, many people get confused about the difference between claims-made and occurrence policies. When discussing liability policies, the difference is all about timing and what the so-called trigger is for the coverage. It’s a question of both what must occur in order for the policy to respond and when it should occur.

Still confused? The main difference is the policy period a claim is paid for if and when a claim occurs. Let’s look at an example. Imagine there was a wrongful act that occurred in 2004 but was not discovered until 2024. Then:

• With an occurrence policy, the claim would be paid under the 2004 policy – with the limits and deductibles of the 2004 policy.
• With a claims-made policy, the claim would be paid under the 2024 policy – with the limits and deductibles of the 2024 policy.

What’s most important in a claims-made policy is the so-called “retroactive date.” The retroactive date is the start date of the claims-made policy that you either bought or renewed. This means that you are covered for any incident as long as it occurred either on or after the retroactive date and was reported to the insurance company within the policy period.

Most EPLI policies are claims-made, as are most errors and omissions and directors and officers insurance policies.

Want to learn more? Read our full guide on the differences between claims-made and occurrence policies.

EPLI vs. Employers Liability Insurance

While these two policies may sound similar, they actually cover completely different things.

Employment Practices Liability Insurance (EPLI) provides companies cover for claims made against them for issues such as harassment, wrongful termination, retaliation, fair pay, breach of contract, and other employment issues.

On the other hand, Employers Liability insurance is essentially an extension of workers compensation insurance. This policy fills in the blanks, providing coverage in situations where workers comp policies will not. For example, workers compensation insurance covers medical bills and lost wages if an employee is injured on the job. But, an employee could go further and sue an employer for the emotional distress of their family. The employee could also file a lawsuit claiming that their injury or illness was specifically caused by employer negligence. This is where EPLI would come into play. 

In another scenario, if the employee was injured by a piece of equipment manufactured by a third party, they could also potentially sue the manufacturer. The manufacturer may then sue the company, which would be covered by employers liability insurance.

Tips for Preventing Employee Lawsuits

While there is certainly no way to truly prevent employment related lawsuits, there are things that you can do as a business professional to minimize the risk and decrease the chances of an employee claim.

Tip: Use HR Software to Develop an Employee Handbook

Zywave allows all Embroker EPLI customers to access tools and resources needed to create a comprehensive employee handbook. Using the HR “in a box” solutions to clearly define proper behavior at the workplace and to insure employees will never deviate from its policies. Be sure to educate your employees and provide adequate in-person or online training. The employee handbook should contain an employment at-will statement and an equal employment opportunity statement.

Here are key things to keep in mind when developing your HR Handbook:

• Promote corporate policies throughout the workplace
  
• Avoid discrimination when hiring; create effective screening programs
  
• Conduct background checks on all potential candidates
  
• Make sure you uphold the U.S. Equal Employment Opportunity Commission Guidelines
  

Tip: Communicate Clear Steps to Report Incidents

If you are creating workplace behavior policies, be sure to enforce zero-tolerance related to harassment and discrimination. Don’t forget to make it easy for people to report problems and access help when needed. A complaint investigation is also very important. Take all employment discrimination complaints seriously and launch a thorough investigation that gets resolved quickly.
Support your staff as they navigate a potential incident by following these steps:

• Show employees what steps to take if they are the object of sexual harassment or discrimination by a supervisor
  
• Ensure you have an “open door” policy that allows employees to report offenses without fear of punishment
• Make sure existing staff know where the company stands on what behaviors are not permissible
  
• Document everything that occurs and the steps your company is taking to prevent and solve employee disputes
  

Here are some of our related guides on identifying and fixing these types of issues in the workplace:

• How to Combat Sexual Harassment in the Workplace
• Wrongful Termination and Insurance: How to Protect Your Business
• Religious Discrimination in the Workplace and How to Fight It
• Ageism in the Workplace and How to Fight It
• What is Blind Hiring? And How to Implement It
• How to Handle Gender Discrimination in the Workplace