Employment Practices Liability Insurance: Essential Coverage for Employers

As American businesses continue to reckon with intolerant behavior in the workplace, it is more critical than ever to understand where your business is protected and exposed. In the United States, 61% of employees have experienced or witnessed workplace discrimination (Leftronic/Statista, 2020). It’s no surprise that according to researchers, three out of five employers will be sued by a prospective, current or former employee. While many suits may be groundless, defending them can be very costly and time consuming.

Adding to the complexity are the countless and constant changes to employment laws. And even the best employers cannot control all of the actions of its executives, managers and employees. That’s why Employment Practices Liability (EPL) insurance is among the most important policies to have in place. EPL insurance provides protection for businesses when wrongful acts are committed involving your employees and subcontractors.

Experts are predicting that claims will only become more complex over time. Regardless of your company’s size, it is wise to have an EPL policy. The cost of the policy is minimal when compared to the toll on your company’s reputation and finances in the event of an employee lawsuit.

What Does Employment Practices Liability Insurance Cover?

EPL insurance covers costs incurred when employees or subcontractors file lawsuits against your business. It covers actions by executives, management personnel, and employees for the following incidents:

  • Defamation
  • Deprivation of a career opportunity
  • Discrimination
  • Failure to promote
  • Invasion of privacy
  • Negligent evaluation
  • Retaliation
  • Sexual harassment
  • Wrongful termination

When might claims arise?

Claims typically result when an executive, manager, or employee engages in a wrongful act against another employee or subcontractor and the injured party files a Complaint against you.

What is typically excluded?

EPL insurance is specific to employment practices only. The most common exclusions include claims involving:

  • Bodily Injury
  • Property Damage
  • Intentional or Dishonest Acts

What if work is subcontracted?

Claims involving a wrongful act against your subcontractors typically are covered.

How does a policy work and how long should you carry coverage?

Usually, EPL policies are written on a claims-made basis, meaning the policy term that responds is the term in which the claim is made.  Even if the wrongful act occurred in a prior policy term, the policy term in which the claim is made would respond to the policy.  This is different from an occurrence based policy, such as General Liability.  The policy term that responds is the term when the incident occurred, not when the claim is made.  As a result, Contractors should carry coverage for as long as they are in business and after the business is no longer active. This extended protection is recommended because many claims arise years after an alleged incident.

How to determine the right amount of coverage?

Your broker should be doing a deep dive into your operations and exposure. One important item to note: your umbrella policy does not sit over Employment Practices Liability.

Coverage is usually determined by the policy limit, the number of employees, and which added coverage, if any, is applied such as:

  • Consultation, HR Assistance, and other risk management consultative services
  • Coverage for defense costs outside policy limits
  • Third-party liability coverage
  • Coverage for claims alleging wage and hours violations
  • Volunteer workers added as additional insureds
  • Extended Reporting Period, or “Tail” coverage, which provides protection for a defined time beyond the end of the policy period

What is the typical length of a policy?

This policy is placed on an annual basis and will need to be renewed 12 months after the initial purchase.

What happens if your business situation changes?

As you grow, it becomes more important than ever to have an EPL policy. The more employees you have, the greater the chance for a claim. Engaging in best HR practices is an important strategy to limit your exposure and reduce your company’s liability.

As with all of your risk management needs, MRG is committed to assisting you with a complete analysis of your program.