What Is Employment Practices Liability Coverage?

Employment practices liability insurance (EPLI) covers claims against your business by employees for illegal acts like discrimination, wrongful termination, and retaliation. It pays for judgments, settlements, and the cost of defending your business from employment-related lawsuits. EPLI protects your business from discrimination claims by current or former employees and job applicants.

Key Takeaways

Employment practices liability insurance covers claims against your business by current, former, or prospective employees for wrongful acts like discrimination and wrongful termination.
Most EPLI policies are claims-made, meaning they cover claims filed against your business during the policy period.
Employees can’t sue your business for discrimination unless they have filed a claim with the EEOC and obtained the right to sue.
Businesses need EPLI to protect themselves from costly discrimination claims.

How Employment Practices Liability Coverage Works

EPLI covers claims by your current, former, or prospective employees for employment-related acts like discrimination, harassment, and demotion. Some policies also cover discrimination claims against your business by third parties, such as customers and vendors.

EPLI pays for damages or settlements awarded to claimants and the cost of defending your business from lawsuits. It may also cover regulatory actions filed against your business by the EEOC. Some policies cover defense costs in addition to the policy limit, while others include them in the limit.

Most EPLI policies are claims-made, meaning they cover claims made against your business while your policy is in effect. They don’t cover claims filed after your policy has expired. Policies typically require you to report all claims to your insurer during the policy period.

Some policies exclude claims resulting from “prior acts,” which are incidents that occurred before your policy began. Others cover claims resulting from prior acts that occurred on or after a date (called the retroactive date) listed in your policy. The retroactive date is usually the starting date of the first EPLI policy you purchased.

Note

Before you can sue your employer for workplace discrimination, you must have filed a claim with the Equal Employment Opportunity Commission (EEOC) and get a right-to-sue notice.

Types of Claims EPLI Covers

EPLI covers claims by current, former, or prospective employees alleging their employer violated their civil rights by committing a wrongful act such as discrimination, harassment (including sexual harassment), or wrongful termination.

Policies vary but many cover claims based on:

Wrongful discipline
Failure to employ or promote
Negligent evaluation
Deprivation of career opportunity
Wrongful infliction of emotional distress
Mismanagement of employee benefit plans
Retaliation
Breach of employment contract

In employment law, retaliation means taking revenge against a worker for doing something that’s protected by federal law, like complaining to management about sex discrimination or requesting an accommodation for a disability.

What Does Employment Practices Liability Exclude?

Many EPLI policies exclude claims involving the following:

Bodily injury or property damage
Wage and hour law violations
Workers compensation law violations
Labor disputes
Fraud or dishonesty
Violations of federal laws like the Occupational Safety and Health Act or the Worker Adjustment and Retraining Notification Act
Unemployment insurance
Punitive damages
Criminal or civil fines or penalties

Some EPLI policies cover punitive damages, but the coverage applies only in states where punitive damages are insurable. Many states prohibit insurance that covers punitive damages.

Why Businesses Need EPLI

If you’re wondering whether your business needs EPLI, you should consider the potential cost of an employment-related claim. Federal law limits the amount of damages a worker can recover in a discrimination suit. The limits vary depending on the size of the employer.

They range from $50,000 for businesses that employ 15 to 100 workers to $300,000 for businesses that employ more than 500 workers.The average out-of-court settlement for a discrimination claim was $75,000 in 2020, and the average jury award was $217,000.

If your business is hit with a discrimination claim and doesn’t have EPLI, your company will have to pay all costs out of pocket.

How much does EPLI cost? Many small businesses pay an annual premium of about $2,665, according to Insureon data as of Jan. 2024.

Employment Practices Liability Claim Example

An example of an employment claim based on age discrimination can help you understand how it works.

Let's say Beth is 52 and has worked as a sales representative for Fancy Furniture for 15 years. One day, Beth’s boss informs Beth that she’s being replaced with a 25-year-old. He says Fancy Furniture wants to attract youthful buyers and needs young salespeople, “not old fogeys like you.” Beth files a liability claim for age discrimination with the EEOC, which investigates the claim and gives her the right to sue her employer. Beth sues Fancy Furniture for $75,000.

Frequently Asked Questions (FAQs)

Is Employment Practices Liability the Same As General Liability?

Employment practices liability and general liability are different coverages. EPLI covers claims by employees for job-related issues like discrimination and sexual harassment. It excludes claims for physical injuries or property damage. General liability insurance covers claims by third parties for bodily injury or property damage caused by an accident or personal and advertising injury caused by a covered offense such as libel or wrongful eviction. General liability policies don’t cover claims resulting from discrimination and other employment-related acts.

What Is the Difference Between Professional Liability and Employment Practices Liability?

Professional liability insurance covers claims by your customers for financial losses caused by mistakes you made or faulty advice you gave while providing a professional service. Employment practices liability insurance covers claims by your employees for civil rights violations like discrimination and wrongful termination. It may also cover regulatory actions filed by the EEOC.

What Does Employment Practices Liability Not Cover?

EPLI does not cover claims involving bodily injury, breach of a contract, criminal or fraudulent acts, labor disputes (including strikes), unpaid wages, or workers compensation benefits. Policies also exclude claims resulting from violations of certain laws, such as the Employee Retirement Income Security Act, National Labor Relations Act, and the Occupational Safety and Health Act.

The Bottom Line

Employment practices liability insurance protects businesses from claims by employees for wrongful acts like discrimination and retaliation. If an employee sues your business for discrimination, your EPLI will pay for the award or settlement and the cost of defending you.

If you have a business, consider buying EPLI because employment-related claims can potentially result in large settlements if you are found liable.