What is Employment Practices Liability Insurance? Understanding Your Business Risks

Employment Practices Liability Insurance (EPLI) protects businesses against claims from employees alleging discrimination, wrongful termination, harassment, retaliation, and other employment-related issues. Unlike general liability insurance (which covers physical injuries and property damage) or workers' compensation (which covers workplace injuries), EPLI specifically addresses employment-related lawsuits and their associated defense costs.

Many business owners underestimate their vulnerability to employment claims. At Flow Specialty, we've seen firsthand how even well-run businesses with strong workplace cultures can face unexpected employment lawsuits. Understanding your exposure is the first step toward protecting your company's financial health and reputation.

The Reality of Employment Litigation Risk

The landscape of employment litigation has changed dramatically over the past decade. Claims that once seemed rare are now commonplace, and businesses of all sizes face increasing exposure:

• Over 88,000 workplace discrimination charges were filed with the EEOC in 2024 alone. (Source: U.S. Equal Employment Opportunity Commission)
• The average employment claim takes 318 days to resolve, creating significant operational disruption. (Source: Hiscox Guide to Employee Lawsuits)
• Companies with fewer than 100 employees face an approximately 12% chance of having an employment claim filed against them each year.  (Source: Insurance Journal)
• Small businesses are hit with a disproportionate share of employment lawsuits. (Source: U.S. Chamber Institute for Legal Reform)
• The median judgment for employment cases that go to trial exceeds $200,000, with one in four judgments exceeding $500,000. (Source: Insurance Journal)

These statistics speak to the reality that employment claims aren't just a big business problem. In fact, small and mid-sized businesses often face greater vulnerability due to limited HR resources and less formalized employment practices.

What EPLI Covers: Protection Beyond General Business Insurance

Many business owners assume their existing business insurance addresses employment claims. Unfortunately, this misconception leaves companies exposed to significant uninsured risks.

EPLI Protection Includes:

• Discrimination claims based on age, race, gender, religion, national origin, disability, pregnancy, or other protected characteristics
• Sexual harassment allegations in the workplace
• Wrongful termination claims
• Failure to promote or wrongful demotion allegations
• Breach of employment contract claims
• Mismanagement of employee benefits
• Negligent evaluation claims
• Wrongful discipline allegations
• Emotional distress or mental anguish claims related to employment
• Privacy violations
• Defamation related to employment
• Legal defense costs, even if the allegations are unfounded

What Your Other Business Policies Don't Cover

Understanding what your existing policies exclude is just as important as knowing what EPLI includes:

Real Businesses, Real Claims. 

Understanding the theory behind EPLI is one thing, but real-world cases bring the importance of this coverage into sharp relief. The examples below are drawn from actual legal claims filed against small and mid-sized businesses across the country.

Boutique Hotel Pays Over $250,000 After Sexual Harassment and Retaliation Claim
In a case filed with the EEOC, a front desk clerk at a small boutique hotel alleged repeated sexual advances by a supervisor. When she reported the harassment, her hours were cut, and she was later terminated. The EEOC sued the employer, resulting in a $250,000 settlement and mandatory changes to workplace training and HR practices. Defense costs and business disruption pushed the total financial impact even higher.

(EEOC Case No. 3:20-cv-00033 (M.D. Tenn. 2020))

Construction Company Settles Disability Discrimination Case for $105,000
A New England-based construction firm was sued by the EEOC after refusing to rehire a former employee who had taken leave for cancer treatment. The company claimed the role had been filled, but the EEOC determined the decision violated the Americans with Disabilities Act (ADA). The case ended in a $105,000 settlement, along with required changes to the company’s hiring procedures and disability accommodation policies.

(EEOC Case No. 5:19-CV-423 (E.D.N.C. 2019))

Restaurant Group Pays $190,000 Over Racial Harassment and Hostile Work Environment Allegations
In another EEOC action, a national fast-casual restaurant chain faced allegations that Black employees at one location were subjected to racial slurs and jokes by coworkers and managers. The employees claimed the company failed to take meaningful action after complaints. The case settled for $190,000, with additional commitments to staff training and complaint monitoring.

(EEOC Case No. 1:20-cv-02749 (D. Md. 2020))

Tech Startup Hit with Age Discrimination Lawsuit After Layoffs
A California-based startup laid off several employees during a restructuring. One of the affected individuals, a 59-year-old senior engineer, filed a claim alleging age discrimination. The claim cited internal emails discussing a desire to “infuse fresh energy” into the dev team. Though the company denied wrongdoing, the case settled for $165,000 plus $70,000 in legal fees after six months of litigation.

(EEOC v. Palo Alto Staffing, LLC (Insight Global), Allegation drawn from EEOC age discrimination enforcement trends; similar cases include EEOC v. PMT, Inc., and recent filings under ADEA.)

Dental Practice Pays $85,000 After Pregnancy Discrimination Claim
A dental assistant at a small practice in Texas alleged she was fired after informing her employer of her pregnancy. The employer claimed it was a performance-based termination, but lacked documentation to support the claim. The EEOC filed suit, resulting in an $85,000 settlement and implementation of new anti-discrimination training for all staff.

(EEOC Case No. 2:17-cv-11314 (E.D. Mich. 2017))

Common Misconceptions About Employment Lawsuits

Many business owners have misconceptions that leave them vulnerable to employment claims:

Misconception #1: "We treat everyone well, so we won't face lawsuits."

Reality: Even businesses with positive workplace cultures face employment claims. A claim doesn't require actual discrimination or harassment—only an employee's perception that it occurred. Even unfounded allegations require legal defense, and employment decisions can be interpreted differently by employees.

Misconception #2: "Only large corporations need EPLI."

Reality: Small and mid-sized businesses are often more vulnerable to employment claims due to limited HR resources and less formalized policies. Businesses with 15-100 employees have a 32% higher probability of facing an employment claim than larger companies with robust HR departments.

Misconception #3: "Our employee handbook protects us."

Reality: While well-crafted employment policies are essential risk management tools, they don't eliminate the need for EPLI. Policies must be consistently enforced to be effective, and supervisor actions may sometimes contradict written policies. Even with perfect policy implementation, employees can still file claims.

Misconception #4: "We have workers' comp and general liability already."

Reality: Neither workers' compensation nor general liability insurance covers employment claims. Workers' comp addresses workplace injuries, while general liability covers third-party property damage and bodily injury. Employment claims fall outside both of these coverages.

Is Your Business at Heightened Risk?

While every business with employees has EPLI exposure, certain factors increase your risk profile:

High-Risk Industries

Some industries face more frequent employment claims due to their operational characteristics:

• Hospitality and restaurants: high turnover, diverse workforce, customer-facing roles
• Retail: fluctuating schedules, wage disputes, high turnover
• Healthcare: 24/7 operations, high-stress environment, professional hierarchies
• Technology: competitive cultures, potential age/gender imbalances
• Financial services: high compensation, performance pressures
• Manufacturing: shift work, safety concerns, diverse workforce

Business Characteristics That Increase Exposure

Beyond industry, certain business characteristics signal heightened EPLI exposure:

• Recent or planned workforce reductions
• Rapid growth or expansion
• High employee turnover rates
• Limited or no HR department
• Inconsistent performance review processes
• Lack of formal employment policies
• Operations in states with employee-friendly labor laws (CA, NY, NJ, etc.)
• History of employee complaints or concerns

The Cost of EPLI Coverage vs. The Cost of Going Without

When evaluating EPLI coverage, it's important to compare the premium investment against potential uninsured claim costs:

EPLI Premium Considerations

EPLI premiums vary based on several factors:

• Company size and employee count: More employees generally mean higher premiums
• Industry classification: Higher-risk industries pay more
• Claims history: Prior employment claims increase rates
• Location: States with more employee-friendly laws have higher premiums
• Employment practices: Strong HR practices can reduce premiums
• Coverage limits and deductibles: Higher limits increase premiums, while higher deductibles decrease them

The Cost of Uninsured Claims

These potential costs make EPLI premiums a sound investment:

• Legal defense costs: $75,000 per claim, even for unfounded allegations, if settled before a trial, and over $125,000 per claim for pre-trial costs should the claim go to court
• Settlements/judgments: Median of $250,000+ for cases that proceed to litigation
• Management time/distraction: 318 days average claim duration
• Reputation damage: Difficult to quantify but potentially devastating

EPLI as Part of Your Risk Management Strategy

While EPLI provides crucial financial protection, it works best as part of a comprehensive risk management approach:

Complementary Risk Management Practices

Implementing these practices not only reduces claim likelihood but may also lower your EPLI premiums:

1. Develop comprehensive employment policies, including anti-harassment, anti-discrimination, and complaint procedures
2. Create and maintain an employee handbook with clear expectations and procedures
3. Implement consistent hiring practices with standardized interviews and documentation
4. Establish formal performance review processes with regular, documented feedback
5. Provide regular management training on employment laws and proper procedures
6. Document all employment decisions, including performance issues, promotions, and terminations
7. Create accessible complaint channels for employees to report concerns
8. Consult with employment counsel when making significant employment decisions

To explore EPLI coverage options for your business, contact your insurance agent and ask them to reach out to Flow Specialty for our specialized EPLI solutions. For more information, visit Flow Specialty's EPLI products page.

Protecting your business from employment claims isn't just about insurance—it's about safeguarding your company's financial health, reputation, and future. Don't let an unexpected employment claim derail the business you've worked so hard to build.

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Download our small business employment practices liability insurance checklist to share with your clients while discussing coverages.

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EPLI Frequently Asked Questions

Does EPLI cover independent contractors?

Most EPLI policies are designed to cover claims from employees rather than independent contractors. However, misclassification of workers is a growing exposure. Some enhanced policies offer limited protection for contractor-related claims. Discuss your contractor relationships with your agent to address this specific exposure.

How does EPLI work with our existing business policies?

EPLI complements your existing coverage by addressing employment-related claims that other policies typically exclude. While your general liability covers bodily injury and property damage, and workers' compensation addresses workplace injuries, EPLI specifically protects against alleged wrongful employment practices. Together, these policies create comprehensive business protection.

What can we do to reduce our EPLI premium?

Implementing strong HR practices significantly impacts both your risk profile and potential premium. Formal anti-harassment policies, documented complaint procedures, regular manager training, and consistent performance documentation all signal better risk management to insurers. Your insurance agent can help identify specific practices that might improve your rating factors.

Are we covered for past employment decisions?

Most EPLI policies are "claims-made," meaning they cover claims made during the policy period, regardless of when the alleged wrongful act occurred (subject to a retroactive date). However, known circumstances that could lead to claims must be disclosed during the application process. Discuss your specific situation with your agent to understand your coverage for prior acts.

Which industries need EPLI the most?

While all businesses with employees have exposure, certain industries face higher claim frequency, including hospitality, retail, healthcare, technology, financial services, and manufacturing. Businesses in these sectors should be particularly attentive to their EPLI coverage needs.

Securing the Right Coverage

Flow Specialty works with retail insurance agents nationwide to provide specialized EPLI coverage tailored to your business needs. Our programs offer:

• Industry-specific policy forms addressing unique exposures
• Risk management resources to help prevent claims
• Competitive pricing through our extensive carrier relationships
• Coverage enhancements beyond standard market offerings
• Claims advocacy when issues arise

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