EPLI Coverage Claims: What’s Covered & What’s Not

A single employee lawsuit can cost your business well over six figures, easily threatening its financial stability. Employment Practices Liability Insurance (EPLI) is your financial shield against these risks. It covers the legal fallout from workplace claims, including wrongful termination, discrimination, and harassment allegations. This coverage is especially critical for nonprofits managing both paid staff and volunteers. But simply having a policy isn’t enough. Understanding the process for EPLI coverage claims is key to making your insurance work for you. We’ll break down what you need to know.

The number of employment-related lawsuits has risen roughly 400% over the past two decades, and nearly half of all cases target companies with fewer than 100 employees. Without EPLI coverage, a single claim can drain six figures from your operating budget before it ever reaches a courtroom.

In this guide, we break down what EPLI insurance is, what it covers, who needs it, how much it costs, and how to reduce your premiums. Learn more about workers’ compensation insurance.

Understanding EPLI Insurance

Employment practices liability insurance, commonly called EPLI, is a type of business insurance that covers employers against claims made by employees, former employees, or job applicants alleging violations of their workplace rights.

Unlike general liability insurance, which addresses bodily injury and property damage, EPLI specifically targets employment-related legal risks. These include claims tied to hiring decisions, workplace management, disciplinary actions, and termination practices. Learn more about general liability insurance.

EPLI policies typically cover:

• Legal defense costs, including attorney fees and court expenses
• Settlements negotiated outside of court
• Judgments awarded by a court if the employer loses the case

Most EPLI policies are written on a claims-made basis, meaning coverage applies to claims filed during the active policy period, regardless of when the alleged incident occurred (as long as it falls after the policy’s retroactive date).

Whether your company has five employees or five hundred, EPLI provides a financial safety net against the rising tide of employment litigation.

By the Numbers: The Cost of an Employee Lawsuit

The financial threat of an employee lawsuit isn’t just a hypothetical risk; it’s a measurable reality backed by hard data. For business owners and executives, understanding these numbers is the first step toward building a sound risk management strategy. A single claim can trigger a cascade of expenses that go far beyond a potential settlement, impacting everything from your legal budget to your team’s productivity. These costs can be staggering, especially for small and mid-sized companies where cash flow is critical. Below, we break down the real-world statistics to give you a clear picture of what’s at stake and why proactive protection is so essential for your company’s financial health and operational stability.

Average Defense and Settlement Costs

Even if a claim against your company is baseless, the cost to defend it can be substantial. According to industry data, the average cost to defend and settle an employment law case is approximately $160,000. Many business owners choose to settle out of court to avoid a lengthy and unpredictable trial, but even that comes at an average price of $75,000. Should a case go before a jury and result in a loss, the average award is a staggering $217,000. These figures don’t account for the internal time and resources spent managing the process, making it clear how quickly costs can escalate and disrupt your business operations without the right insurance coverage in place.

Claim Resolution Timelines

Beyond the direct financial hit, employee lawsuits drain your most valuable resource: time. The average employment claim takes over 300 days to resolve. That’s nearly a full year where your leadership team’s focus is diverted from core business activities like growth, innovation, and customer service. This prolonged period of uncertainty can damage team morale, create a stressful work environment, and stall important company initiatives. The longer a claim drags on, the more it costs in lost productivity and opportunities, reinforcing the need for a strategic partner who can help manage the process efficiently while you concentrate on running your business.

Frequency of Discrimination Charges

Employment-related claims are far more common than many business owners realize. In 2020 alone, the U.S. Equal Employment Opportunity Commission (EEOC) handled 70,804 discrimination charges and secured $439.2 million for victims from employers. These claims span a wide range of issues, with some being more frequent than others. For example, there were over 14,000 age discrimination charges filed that year, highlighting a significant area of risk as the workforce continues to diversify in age. The sheer volume of these charges demonstrates that no company is immune, regardless of size, industry, or internal policies, making EPLI a foundational part of any comprehensive risk management plan.

Retaliation and Sexual Harassment Statistics

Two of the most significant drivers of employment claims are retaliation and sexual harassment. In fact, more than half of all claims filed with the EEOC in 2020 were related to retaliation. This often occurs when an employee who previously filed a complaint feels they are being unfairly treated as a result, creating a second, more complex legal issue for the employer. Additionally, sexual harassment claims remain a persistent threat, accounting for nearly one-third (31.7%) of all charges filed with the EEOC. These statistics underscore the layered and sensitive nature of workplace disputes and the critical need for financial protection against these prevalent claims.

What Employee Claims Does EPLI Coverage Handle?

EPLI insurance covers a broad range of employment-related allegations. Here are the most common types of claims:

Wrongful Termination Claims

Wrongful termination claims allege that an employee was fired in violation of employment laws or company policies. This includes terminations that appear retaliatory, discriminatory, or in breach of an employment contract. Even when the termination was justified, defending against these claims can cost tens of thousands of dollars.

Real-world example: A mid-size hospitality company terminated a long-tenured manager following a restructuring. The manager filed a wrongful termination suit alleging age discrimination, claiming younger employees in similar roles were retained. The company spent over $85,000 in legal defense before reaching a settlement, even though the restructuring was documented and legitimate. EPLI covered the defense costs and settlement.

Discrimination and Bias Lawsuits

Discrimination claims involve allegations of unequal treatment based on protected characteristics such as race, gender, age, religion, disability, sexual orientation, or national origin. Federal laws like Title VII of the Civil Rights Act, the Americans with Disabilities Act (ADA), and the Age Discrimination in Employment Act (ADEA) govern these protections.

Real-world example: In a widely cited case, a food and beverage director at a hotel chain filed a gender-based pay discrimination lawsuit. After initial dismissal, a federal district court jury awarded $25 million in punitive damages. While most discrimination cases settle for far less, average settlements for discrimination claims range from $40,000 to over $200,000 depending on the severity and jurisdiction.

Workplace Harassment Allegations

Harassment claims, including sexual harassment and hostile work environment allegations, are among the most common EPLI claims. These can involve inappropriate conduct by supervisors, coworkers, or even third parties such as clients or vendors.

Real-world example: A small professional services firm with 30 employees faced a sexual harassment claim from an administrative assistant who alleged repeated inappropriate comments by a senior partner. Despite the firm’s swift response in terminating the partner, the claimant pursued litigation. The firm’s EPLI policy covered $120,000 in defense costs and a $65,000 settlement, expenses that would have been devastating to absorb out of pocket.

Retaliation Against Employees

Retaliation claims arise when an employee alleges they were punished for exercising a legal right, such as filing a discrimination complaint, reporting safety violations, or participating in an investigation. The Equal Employment Opportunity Commission (EEOC) reports that retaliation is the most frequently filed charge category, accounting for more than half of all EEOC charges in recent years.

Wage and Hour Disputes

Some EPLI policies include limited coverage for wage and hour claims, such as disputes over overtime pay, minimum wage violations, or employee misclassification. However, this coverage often requires a specific endorsement, so review your policy carefully. Wage and hour class actions have become one of the fastest-growing categories of employment litigation, with average settlements exceeding $1 million for multi-plaintiff cases.

What Else Does EPLI Insurance Cover?

Depending on the policy, EPLI may also cover:

• Breach of employment contract
• Failure to promote or hire
• Negligent employee evaluation
• Defamation or invasion of privacy
• Wrongful infliction of emotional distress
• Deprivation of career opportunity

First-Party vs. Third-Party Coverage: What’s the Difference?

Standard EPLI policies provide first-party coverage, which protects against claims made by current, former, or prospective employees. This is the core of most EPLI policies.

Third-party EPLI coverage extends protection to claims made by non-employees, such as customers, vendors, or clients, who allege discrimination or harassment by your employees. For example, if a customer claims they were subjected to discriminatory treatment at your place of business, third-party coverage would apply.

Third-party coverage is particularly valuable for businesses in industries with high public interaction, including:

• Retail and hospitality
• Healthcare
• Professional services
• Real estate

When evaluating EPLI policies, ask your broker whether third-party coverage is included or available as an endorsement. The additional premium for third-party coverage is typically modest relative to the protection it provides.

Modern Workplace Trends and Your EPLI Risk

The modern workplace is anything but static. Shifts in how we work, evolving social norms, and new legislation create a complex risk landscape for employers. Staying informed about these trends is no longer optional—it’s a core part of a sound risk management strategy. For forward-thinking leaders, this means treating employment practices not just as an HR function, but as a critical component of operational resilience. Understanding how developments like the gig economy, pay equity movements, and changing drug laws impact your business can help you proactively address potential liabilities before they turn into costly claims. Let’s look at a few key areas where EPLI risk is growing.

The Gig Economy and Worker Misclassification

The rise of freelance and contract work has blurred the lines between independent contractors and employees, leading to a surge in lawsuits related to the Fair Labor Standards Act (FLSA). Misclassifying a worker as an independent contractor when they should be an employee can expose your business to significant financial penalties. If a court determines a worker was misclassified, you could be on the hook for back pay, unpaid overtime, and benefits. This is a particularly tricky area because classification rules can be complex and vary by state, making it a common and expensive mistake for businesses that rely on flexible talent.

Ongoing Gender Pay Gap Lawsuits

Pay equity remains a major focus in employment law. With full-time women still earning significantly less than their male counterparts on average, the number of gender-based pay discrimination lawsuits continues to climb. These claims allege that pay disparities are not based on legitimate factors like experience or performance but on gender. A single lawsuit can result in substantial legal fees and settlements, not to mention damage to your company’s reputation. Proactively auditing your compensation practices and ensuring pay is equitable across your organization is a critical step in mitigating this risk.

Navigating Marijuana Legalization

As more states legalize marijuana for medical or recreational use, employers are facing new challenges in managing workplace drug policies. The conflict between federal law (which still classifies marijuana as an illegal substance) and state laws creates a confusing environment. Employers must carefully update their policies to balance workplace safety with evolving employee rights, especially concerning off-duty use and accommodations for medical marijuana patients. Failing to adapt your policies to these changing legal standards can easily lead to discrimination claims and increase your EPLI exposure.

Does Your Business Need EPLI Insurance?

The short answer: any employer with one or more employees faces exposure to employment-related claims.

However, certain businesses carry higher risk and should prioritize EPLI coverage:

• Growing businesses adding employees quickly, where HR policies may not keep pace with headcount growth
• Companies without dedicated HR departments, where inconsistent practices increase claim risk
• Industries with high employee turnover, such as construction, hospitality, and retail
• Businesses with a history of employment claims, where past disputes signal ongoing risk
• Organizations managing remote or hybrid workforces, where inconsistent treatment across work arrangements can trigger claims
• Companies in regulated industries, such as healthcare, financial services, and manufacturing

According to the EEOC, tens of thousands of workplace discrimination charges are filed each year. In 2024 alone, the agency recovered nearly $700 million for over 21,000 workers. Even unfounded claims require a legal defense, and that defense is expensive without EPLI.

How Your Industry Affects Your EPLI Needs

Employment risk is not distributed equally across industries. Understanding your sector’s unique exposure helps you right-size your coverage:

Construction: High turnover, physically demanding work environments, and a heavily male workforce create elevated risk for discrimination and harassment claims. Subcontractor relationships add complexity around employee classification. Construction firms should ensure EPLI policies cover claims from both direct employees and leased workers.

Healthcare: Medical facilities face claims from clinical staff, administrative employees, and contractors. The hierarchical nature of hospital settings, combined with high-stress conditions and shift work, increases harassment and retaliation risk. Healthcare employers also face heightened exposure to claims around disability accommodations and FMLA compliance.

Hospitality: Hotels, restaurants, and event venues consistently rank among the highest-risk industries for EPLI claims. Tipped employee wage disputes, frequent customer interaction (creating third-party exposure), high turnover, and a young workforce all drive elevated claim frequency. Third-party EPLI coverage is especially important in this sector.

Technology: Rapid growth, frequent reorganizations, and competitive hiring practices create risk around wrongful termination and discrimination claims. Remote work policies add a layer of complexity. Tech companies should pay attention to claims around algorithmic bias in HR tools and inconsistent treatment of remote versus in-office employees.

Professional Services: Law firms, accounting practices, and consulting companies face unique EPLI exposure tied to partnership disputes, failure-to-promote claims, and compensation-based discrimination allegations. The competitive advancement culture in these firms can generate claims from associates who feel passed over.

What’s the Average Cost of EPLI Insurance?

EPLI premiums vary significantly based on your company’s risk profile. For small businesses, EPLI insurance costs an average of approximately $222 per month, or about $2,665 annually, according to industry data from leading carriers. However, your actual cost depends on several key factors.

How Company Size Impacts Your Premium

The table below provides approximate annual EPLI premium ranges based on employee count. These figures reflect typical policies with standard limits and assume no adverse claims history:

Company Size	Approximate Annual Premium	Typical Deductible	Common Policy Limit
1-10 employees	$800 – $2,000	$2,500 – $5,000	$100,000 – $500,000
11-25 employees	$2,000 – $4,000	$5,000 – $10,000	$250,000 – $1,000,000
26-50 employees	$4,000 – $8,000	$10,000 – $25,000	$500,000 – $2,000,000
51-100 employees	$8,000 – $15,000	$10,000 – $25,000	$1,000,000 – $3,000,000
100-250 employees	$15,000 – $35,000	$25,000 – $50,000	$2,000,000 – $5,000,000
250+ employees	$35,000+	$50,000+	$5,000,000+

These are general benchmarks. Your actual premium could be higher or lower depending on the factors below.

How Company Revenue Affects Your Premium

Insurers view company revenue as a key indicator of risk. Simply put, businesses that make more money often pay higher premiums because they represent a larger target for litigation. Plaintiffs and their attorneys may pursue higher settlement demands from companies with deep pockets, and juries may award larger damages. This increased financial exposure is directly reflected in your EPLI costs. For example, companies earning over $5 million annually might see their premiums increase by 25% to 40% compared to smaller businesses. This isn’t a penalty for success; it’s a statistical calculation of potential liability. As your revenue grows, it’s essential to work with a broker who can help structure your commercial insurance program to scale with your exposure.

The Impact of Employee Turnover

High employee turnover is a significant red flag for insurance underwriters. If many employees leave your company each year, it can signal underlying issues like poor management, a toxic work environment, or inconsistent HR practices—all of which are breeding grounds for employment claims. Disgruntled former employees are the most common source of EPLI lawsuits. Consequently, a high turnover rate directly increases your risk profile. Insurers quantify this risk; turnover rates above 20% can add 10% to 20% to your annual premiums. Managing this risk requires a strategic approach to workforce stability and engagement. Implementing strong employee benefits and HR support systems not only improves retention but can also lead to more favorable insurance terms.

The Role of Employee Count

This is the single largest driver of EPLI cost. More employees means greater exposure. Companies with 100+ employees typically pay three to five times more than businesses with fewer than 25, all else being equal.

Why Your Industry Matters

Some industries carry inherently higher employment risk. Construction, healthcare, hospitality, and professional services tend to see more frequent claims and correspondingly higher premiums. A technology startup with 50 employees may pay significantly less than a restaurant group with 50 employees.

How Past Claims Affect Future Costs

A company with prior EPLI claims or employment-related lawsuits will face higher premiums. Insurers view claims history as a strong predictor of future risk. Even a single claim in the past three to five years can increase your premium by 10% to 30%.

The Impact of Your HR Policies

Companies with documented HR policies, consistent disciplinary procedures, and regular employee training often qualify for lower premiums. Insurers reward proactive risk management. Businesses that can demonstrate a formal employee handbook, annual anti-harassment training, and a documented complaint process may see premium reductions of 5% to 15%.

Choosing Your Policy Limits and Deductibles

Coverage limits typically range from $100,000 to several million dollars. Higher limits increase premiums, while higher deductibles (commonly $2,500 to $50,000) reduce them. The average deductible selected by small businesses is approximately $10,000.

Does Your Location Change Your Rate?

Employment laws and litigation frequency vary by state. Businesses in states with employee-friendly legislation, such as California, New York, New Jersey, and Illinois, may face premiums 20% to 40% higher than companies in states with lower litigation rates.

7 Ways to Reduce Your EPLI Premiums

Lowering your EPLI costs starts with reducing your overall employment risk. Insurers increasingly evaluate not just your headcount but how you manage your workforce. Here are proven strategies, each with specific implementation guidance:

1. Maintain a comprehensive employee handbook that clearly outlines workplace policies, anti-discrimination rules, and complaint procedures. Review and update it annually. Insurers often require a current handbook as a condition of coverage, and a well-documented one signals lower risk. Include sections on anti-harassment policy, equal employment opportunity, progressive discipline, and complaint reporting procedures.

2. Conduct regular management training on harassment prevention, proper termination procedures, and documentation best practices. Annual training for all supervisors and managers is the minimum standard; quarterly refreshers for front-line managers are ideal. Many carriers offer premium credits of 5% to 10% for companies that can document regular training programs.

3. Implement consistent hiring and termination processes with documented decision-making criteria to reduce claims of bias. Use standardized interview questions, scoring rubrics, and multi-person review panels for hiring. For terminations, require written documentation of performance issues and HR review before any employee is let go.

4. Establish a formal complaint resolution process that employees can access without fear of retaliation. This should include multiple reporting channels (direct supervisor, HR, anonymous hotline) and a documented investigation protocol. The existence of a functioning complaint process is one of the strongest defenses against harassment and discrimination claims.

5. Document everything — performance reviews, disciplinary actions, and termination decisions should be recorded in writing and stored securely. Consistent documentation is your first line of defense in any employment claim. A well-documented performance improvement plan can be the difference between a dismissed claim and a six-figure settlement.

6. Work with an employment attorney to review policies and ensure compliance with federal, state, and local employment laws. Annual legal audits are especially important for companies operating in multiple states, where employment laws can differ significantly. Many carriers view an annual legal review as a positive underwriting factor.

7. Partner with an experienced insurance broker who can structure your EPLI policy to match your risk profile and secure competitive rates. A broker who specializes in management liability can help you compare policy forms, negotiate better terms, and identify coverage gaps that generic policies often miss.

Implement Comprehensive Employee Training

One of the most effective ways to reduce employment claims is to invest in proactive training. Your managers and supervisors are your first line of defense, so they need a solid understanding of key employment laws. Regular training sessions should cover the essentials of the Americans with Disabilities Act (ADA), the Family and Medical Leave Act (FMLA), and guidelines from the Equal Employment Opportunity Commission (EEOC). This ensures they know how to handle accommodation requests, manage leave, and make decisions that are fair and legally compliant. Beyond management, providing anti-harassment training for your entire staff creates a culture of respect and accountability, making it clear what is expected of everyone in the workplace.

Address Age Discrimination Risks

As the workforce ages, age discrimination is becoming a more significant area of risk for employers. Workers aged 55 and older now represent nearly a quarter of the U.S. workforce, a substantial increase from previous decades. This demographic shift means that claims related to the Age Discrimination in Employment Act (ADEA) are more likely to occur. Allegations can arise from hiring decisions, promotion pass-overs, or layoffs that disproportionately affect older employees. Training your managers to recognize and avoid age-related bias is critical. They should focus on skills, performance, and qualifications rather than making assumptions based on an employee’s age or proximity to retirement.

Train Managers on Key Employment Laws

While general anti-harassment training is a great start, your leadership team needs a deeper knowledge of specific employment laws to effectively manage their teams and minimize risk. This training should go beyond high-level concepts and cover the practical application of laws like the FMLA and ADA. For example, managers should know how to identify a potential need for a reasonable accommodation and who to involve from HR. They also need to understand what constitutes protected leave and how to avoid retaliating against an employee who uses it. Equipping your managers with this knowledge empowers them to handle sensitive situations correctly and consistently, which is a key factor underwriters look for.

Strengthen Your Hiring Process

Your risk management efforts should begin before an employee even joins your team. A well-structured and consistent hiring process is fundamental to preventing claims of discriminatory hiring practices. Start by creating standardized job descriptions and interview questions that focus on the essential functions and qualifications for each role. Using a consistent screening program for all applicants helps ensure that every candidate is evaluated on the same objective criteria. This structured approach not only helps you find the best talent but also creates a clear, defensible record of your hiring decisions, making it much harder for a rejected applicant to claim they were treated unfairly.

Conduct Thorough Background Checks

Incorporating background checks into your pre-employment screening can help you avoid potential issues down the line. When conducted properly, these checks can verify a candidate’s qualifications and identify red flags related to workplace safety. However, it’s crucial that your process complies with the Fair Credit Reporting Act (FCRA) and other applicable laws. This means you must get the applicant’s consent, follow specific notification procedures, and apply your screening criteria consistently to all candidates for a given role. Failing to do so could expose you to a different kind of lawsuit, so it’s wise to work with legal counsel to ensure your background check policy is compliant.

Bundle Coverage with a Strategic Partner

You can often find significant savings by bundling your EPLI policy with other essential business coverages, such as general liability or workers’ compensation insurance. Many insurance carriers offer discounts between 10% and 25% for clients who place multiple policies with them. This approach does more than just lower your premiums; it streamlines your risk management. Working with a single advisory firm like InsuranceUnderwriters.com allows you to build a unified insurance strategy where all your policies work together seamlessly. This integrated approach ensures there are no gaps in your protection and gives you a single point of contact for all your risk management needs, from coverage placement to claims support.

Optimize Your Deductible

Choosing the right deductible is a strategic decision that directly impacts your EPLI premium. A deductible is the amount you agree to pay out of pocket for a claim before your insurance coverage kicks in. By opting for a higher deductible—for instance, increasing it from $5,000 to $10,000—you can often reduce your annual premium by 15% to 20%. This can be a smart move for businesses with strong internal controls and a healthy cash flow that can comfortably absorb the higher out-of-pocket cost. It’s a trade-off between a lower fixed cost (your premium) and a higher potential variable cost (your deductible), so you should evaluate your company’s risk tolerance and financial position to find the right balance.

Understanding the Fine Print of Your EPLI Policy

An EPLI policy is more than just a document; it’s a detailed contract where the specifics truly matter. Overlooking the fine print can create unexpected coverage gaps right when you need protection the most. To ensure your policy performs as expected, it’s essential to understand a few key provisions, like how claims are handled and how your policy limits are applied. These details are fundamental to your company’s risk management strategy. Let’s break down three of the most critical components you’ll find in your policy documents so you can make informed decisions about your coverage.

“Claims-Made and Reported” Basis

Most EPLI policies are written on a “claims-made and reported” basis. In simple terms, this means the policy only covers claims that are both filed against your company and reported to the insurer during the active policy period. The timing of the alleged wrongful act doesn’t matter, as long as it happened after a specific “retroactive date” listed in your policy, which is usually the date you first purchased coverage. This structure requires maintaining continuous protection. If you let your policy lapse, even for a short time, any claims filed during that gap—even for prior incidents—won’t be covered, creating a significant and avoidable vulnerability.

How Defense Costs Affect Your Limits

When an employment claim lands on your desk, your first and often largest expense will be legal defense. EPLI policies are designed to cover these costs, but it’s vital to know how they impact your overall coverage limit. The majority of policies treat defense costs as part of your total limit of liability, a feature known as “defense within the limits.” For instance, if your policy has a $1 million limit and you spend $200,000 on attorney fees, you now have only $800,000 left to pay for a potential settlement or judgment. This can significantly reduce your financial safety net in a prolonged legal battle, making it critical to select a limit that adequately accounts for both defense and resolution costs.

The Role of Tail Coverage

Since EPLI is a claims-made policy, a critical question arises: what happens if a claim is filed after your policy expires? This is where tail coverage, formally called an Extended Reporting Period (ERP), becomes indispensable. If you switch insurance carriers, sell your business, or retire and cancel your policy, you need a way to cover claims that stem from past events. Tail coverage extends the timeframe for reporting claims related to incidents that occurred while your policy was active. Without it, you could be left personally and financially exposed to lawsuits from former employees that surface months or even years down the road, undermining all your previous risk planning.

What Isn’t Covered by EPLI Insurance?

While EPLI provides broad protection, most policies exclude certain types of claims:

• Workers’ compensation claims — covered by your workers’ comp policy
• Bodily injury and property damage — covered by general liability insurance
• Punitive damages — many states prohibit insurance coverage for punitive damages
• Criminal or civil fines and penalties — regulatory fines are typically excluded
• Intentional or criminal acts — deliberate wrongdoing by the employer is not covered
• OSHA and WARN Act violations — workplace safety and mass layoff notification violations are usually excluded
• Prior known claims — incidents the employer was aware of before purchasing the policy
• Wage and hour claims (standard) — most base EPLI policies exclude these, though endorsements are increasingly available

Some exclusions can be partially addressed through policy endorsements. For example, limited wage and hour coverage may be available as an add-on, typically with a sub-limit and separate deductible. Third-party coverage, defense-outside-limits provisions, and extended reporting period (tail) coverage are other common endorsements worth discussing with your advisor. Discuss your specific needs with your insurance advisor to identify any gaps.

Fair Labor Standards Act (FLSA) Claims

Claims related to the Fair Labor Standards Act (FLSA) are a major source of liability for employers and are frequently excluded from standard EPLI policies. This federal law establishes rules for minimum wage, overtime pay, and recordkeeping. Common violations include misclassifying employees as exempt from overtime, failing to pay for all hours worked, or making improper deductions from pay. These mistakes, even when unintentional, can lead to costly class-action lawsuits. In fact, the U.S. Department of Labor’s Wage and Hour Division is constantly recovering back wages for employees, with over 150,000 workers receiving them in a single recent year. Because base EPLI policies often exclude wage and hour claims, it’s critical to discuss adding a specific endorsement to cover this significant risk.

State Unemployment Insurance Claims

While EPLI doesn’t cover the cost of unemployment benefits, the claims process itself can be a breeding ground for lawsuits. When an employer contests an employee’s claim for unemployment benefits, it can sometimes trigger a retaliatory lawsuit alleging wrongful termination. For example, an employee who is denied benefits might claim their termination was not for misconduct but was discriminatory. The U.S. Department of Labor explains that unemployment insurance is designed to assist those who lose their job through no fault of their own. An employer’s attempt to prove fault in this process can escalate tensions and lead to a covered EPLI claim, making careful documentation and consistent HR practices essential even after an employee has departed.

EPLI vs. D&O Insurance: What’s the Difference?

EPLI and Directors & Officers (D&O) insurance are both management liability policies, but they serve different purposes and respond to different types of claims:

Feature	EPLI	D&O Insurance
Primary purpose	Protects the company as an employer	Protects directors, officers, and the company from governance claims
Claims covered	Employment-related claims (discrimination, wrongful termination, harassment, retaliation)	Claims alleging mismanagement, breach of fiduciary duty, regulatory violations, financial misreporting
Who files claims	Employees, former employees, job applicants	Shareholders, investors, regulators, competitors, creditors
Typical claim scenarios	Harassment lawsuit, EEOC discrimination charge, wrongful termination claim, wage dispute	Shareholder derivative suit, SEC investigation, breach of fiduciary duty claim, merger objection
Policy structure	Typically one insuring agreement covering the entity	Usually three parts: Side A (individual directors/officers), Side B (company reimbursement), Side C (entity coverage)
Average claim cost	$75,000 – $200,000 for defense and settlement	$500,000+ for mid-market companies
Common endorsements	Third-party coverage, wage and hour, prior acts	Outside directorship, Side A DIC, entity investigation coverage
Who needs it	Any business with employees	Companies with boards, outside investors, or significant regulatory exposure

Do You Need Both EPLI and D&O?

Most growing businesses benefit from carrying both EPLI and D&O coverage. They address fundamentally different risk categories: EPLI handles workforce risk (claims from employees) while D&O handles governance risk (claims from shareholders, regulators, and other stakeholders).

Many carriers offer both as part of a management liability package, which may also include fiduciary liability and crime coverage. Bundling these policies can provide comprehensive protection at a more competitive rate, often with savings of 10% to 20% compared to purchasing each policy separately.

If your organization has a board of directors, outside investors, or officers making strategic decisions, D&O is essential. If you employ people in any capacity, EPLI is essential. For most mid-market and growing businesses, both are non-negotiable.

Companies managing 401(k) plans, pension funds, or group health benefits face additional exposure under ERISA. Fiduciary liability insurance covers breach-of-duty claims related to employee benefit plan administration, a risk category that EPLI policies do not address.

Frequently Asked Questions About EPLI Insurance

Is EPLI insurance required by law?
No. EPLI is not legally mandated in any state. However, it is strongly recommended for any business with employees, given the frequency and cost of employment-related claims.

Does general liability insurance cover employment claims?
No. General liability insurance covers bodily injury, property damage, and advertising injury. Employment-related claims are specifically excluded from most general liability policies.

Can EPLI be added to an existing policy?
Yes. EPLI can be purchased as a standalone policy or added as an endorsement to a Business Owner’s Policy (BOP) or management liability package.

What is the difference between EPLI and professional liability insurance?
Professional liability (E&O) insurance covers claims from clients alleging errors in your professional services. EPLI covers claims from employees alleging violations of their workplace rights. They protect against different types of risk.

Does EPLI cover claims from remote employees?
Yes. EPLI coverage applies regardless of where the employee works. With the rise of remote and hybrid work arrangements, ensuring consistent employment practices across all locations is critical.

How long does it take to resolve an EPLI claim?
Most EPLI claims take 12 to 24 months to resolve from initial filing to settlement or judgment. Complex cases involving class actions or multiple plaintiffs can take three years or longer. During this period, your EPLI policy covers ongoing defense costs.

Can I get EPLI coverage if my company has had previous claims?
Yes, though your options may be more limited and premiums will be higher. Some carriers specialize in higher-risk accounts. An experienced broker can help you find coverage even with adverse claims history by demonstrating the corrective measures you have implemented since the prior claims.

How to Choose the Right EPLI Policy

Employment claims can surface without warning, and the financial impact of even a single lawsuit can be devastating for businesses of any size. EPLI insurance provides the protection you need to defend your company, cover settlement costs, and maintain operations during litigation.

At Insurance Underwriters, we specialize in structuring EPLI policies that match your company’s size, industry, and risk profile. Our team evaluates your current exposure, identifies coverage gaps, and connects you with the right carriers to secure comprehensive employment practices liability coverage at competitive rates.

Ready to protect your business? Contact Insurance Underwriters today at (305) 900-2823 to request an EPLI insurance quote and speak with a risk advisor about your coverage options.

Key Takeaways

• Protect your business from costly employment claims: EPLI is essential coverage for any company with employees, designed to handle the six-figure legal fees and settlements from lawsuits alleging wrongful termination, discrimination, or harassment.
• Proactive HR management is your best cost-control tool: Insurers offer lower premiums to businesses that demonstrate strong risk management. Implementing an employee handbook, training managers, and documenting procedures can lead to significant savings on your policy.
• Know your policy’s fine print to avoid surprises: Key provisions, such as a “claims-made” structure and how legal fees affect your coverage limit, are crucial. Understanding these details ensures your policy will perform as expected when you face a lawsuit.

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