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Marianne Bonner, CPCU, ARM, covers business insurance topics for Investopedia, building on 30 years of experience working in the insurance industry. She has written extensively for The Balance and The Risk Report, and holds an MBA from Oklahoma City University.
Published March 12, 2024
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.
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.
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.
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:
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.
Many EPLI policies exclude claims involving the following:
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.
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.
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.
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.
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.
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.
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.
