Any business that employs others is vulnerable to potential lawsuits from current, former, or prospective employees alleging unfair or illegal treatment. From the hiring process all the way to separation from an employee, there are countless potential issues that could lead to a costly claim. And in today’s rapidly shifting social and legal environment, claims are becoming more common.
One of the best tools that businesses can have to protect themselves in the event of a claim is employment practices liability insurance, or EPLI. This form of commercial coverage helps employers pay for the cost of defending against or settling a lawsuit and also often comes with access to resources and expertise to navigate personnel issues. This guide will lay out everything you need to know about EPLI, from what it covers and what it costs to what to look for when shopping for a policy. And lastly, we’ll share reviews of some of the top EPLI providers out there. If you already know what you are looking for and simply want to get a quote from one of our top-rated providers, begin below.
Employment Law Basics
More than 6 million businesses in the U.S. have paid employees, according to data from the U.S. Small Business Administration. Each of those businesses is subject to a variety of legal frameworks at the federal, state, and local level in managing their relationships with current, former, and prospective employees. Employers can face enforcement mechanisms for employment law in several forms:
- Federal laws and rules. Over the years, the federal government has enacted a variety of requirements on employers, such as minimum wage and overtime laws, occupational safety standards, and civil rights protections. The Equal Employment Opportunity Commission (EEOC) is one of the primary bodies for enforcing employment law, investigating complaints around retaliation and discrimination related to race, gender, age, national origin, disability, and other protected categories. Employers who violate federal laws could face fines and penalties and be subject to lawsuits.
- State and local laws and rules. States and localities may have additional laws on top of baseline requirements set at the federal level for issues like wages, workplace safety, and anti-discrimination. State and local laws may also affect how easy it is for employees to bring claims and the type or amount of penalties an employer may be forced to pay. In particular, some states like California and New York are considered to have more employee-friendly laws that raise the likelihood of an employer facing legal action.
- Civil litigation. In addition to the fines and penalties that an employer could be forced to pay for violating employment law, employees who feel that their rights have been deprived through an employer’s actions can also bring civil lawsuits. These suits can be based on legal principles like negligence or breach of contract in an employment agreement, rather than a violation of a law.
While most employers want to have positive relationships with their employees and strive their best to follow the law, mistakes and disputes over employment conditions inevitably occur. When employees file a complaint with federal or state employment authorities or bring a lawsuit in the courts, employers can be exposed to significant costs from legal defense, settlements, or damages. And in recent years, such legal actions have become more common and more expensive.
The EEOC reported that more than 67,000 charges of discrimination were filed at the federal level in Fiscal Year 2020, with the agency ultimately securing more than $439.2 million for victims through settlements and litigation-figures that do not include additional action through state and local government employment enforcement. For cases that go to court, the Insurance Information Institute pegs the median jury award in an EPLI case at $125,000. And the employment landscape is becoming increasingly complex: the #MeToo and Black Lives Matter movements have brought attention to sexual harassment and racial discrimination, COVID-19 has raised a variety of issues around workplace safety, the rise of the gig economy has increased scrutiny around worker classification issues, and states are rapidly changing laws around issues like recreational drug use and biometric privacy that could affect employment arrangements. Each of these issues creates greater risk of an employment-related lawsuit.
In light of employers’ legal requirements and the potential risks they pose, employers should be careful in following the law and maintaining strong, fair HR policies, but they should also always be prepared for the possibility that they could face claims from a current, former, or prospective employee. And one of the best ways to be prepared for such a situation is to obtain a policy for employment practices liability insurance (EPLI).
Understanding Employment Practices Liability Insurance
Businesses can and should aim to provide a safe, fair, compliant workplace for their employees, but despite any employer’s best efforts, workers may believe that their rights have been violated and bring claims against their employers. Employment practices liability insurance (EPLI) is the form of business insurance coverage that protects businesses when these claims occur. This section will explain how EPLI works, what it covers, and what other considerations particular businesses should keep in mind.
What Is Employment Practices Liability Insurance & How Does it Work?
Employment practices liability insurance is a form of commercial liability insurance that covers a business’s costs when facing a claim from an employee, former employee, or employment candidate over an alleged denial of rights or failure to provide certain protections.
For example, a current employee who experienced sexual harassment, a job candidate who felt they were discriminated against in the hiring process, or a whistleblower who was fired and claims retaliation could all bring legal action against their employers. When these claims incur the costs of legal defense and settlements, an EPLI policy can cover some portion of the costs to the defendant employers.
EPLI policies can be purchased as an endorsement for other commercial policies like a business owners insurance policy (BOP) or as a standalone coverage, depending on the insured’s needs and preferences. With a policy in effect, the insurer will agree to cover some portion of the costs for a legal defense and any settlements or damages.
Like other forms of insurance coverage, EPLI policies contain several key components that outline the terms of the policy, including what is covered and costs to the policyholder:
- Coverage. This refers to the types of eligible incidents and claims that the insurance policy will pay for. Examples of issues that may be covered under an employment practices liability insurance policy include but are not limited to discrimination, sexual harassment, wrongful discipline or termination, and breach of contract.
- Premium. The premium is the amount that a policyholder pays on a regular basis (e.g. monthly or annually) to retain their insurance policy. Insurers set premiums for EPLI policies based on a variety of factors specific to the business that may affect the likelihood of claims. These factors may include considerations like the number of employees or the business’s claims history.
- Deductible. Deductibles are the agreed-upon amount that a policyholder pays toward claims before insurers begin to pay out under an EPLI policy. Deductibles are an important consideration for the overall cost of a policy: higher deductibles usually result in lower premiums because the insured takes on higher levels of risk and vice versa.
- Policy Limit. A policy limit is the overall maximum that an insurer will agree to pay toward claims on a policy, which is another way policyholders and insurers can adjust their risk exposure on each policy. As with deductibles, the policy limit affects the cost of a policy, with higher limits costing more and lower limits costing less. Policyholders are responsible for paying the cost of claims above the policy limit.
Specific details of a policy can affect whether a business has adequate coverage for employment practices liability claims. When working with a potential insurance carrier, businesses should carefully review policy documents and ask insurers about different elements of coverage, including the following:
- Policy periods. When setting up a policy, policyholders and insurers establish dates when coverage takes effect and when claims can be reported. These do not need to coincide with the particular period when the policyholder is actively paying for coverage. A retroactive date can set the policy to cover claims that predate when the policyholder purchases the policy, and extended reporting periods (or tails) can allow for coverage of claims reported after the policy has ended.
- Claims-made vs. occurrence policies. A claims-made policy is one that covers incidents reported while the policy is active, while an occurrence policy covers incidents that take place while the policy is active, regardless of when they are reported. Most (but not all) commercial liability policies are written as claims-made, so businesses should think carefully about where they set retroactive dates and tails, especially when switching between policies.
- Per-claim and aggregate limits. Insurers may set policy limits both for how much they will pay out for each incident or claim and how much they will pay out in total under the policy within a set period, most commonly one year. If a policyholder faces too many costly claims within that period, they may end up effectively uninsured.
- Specified perils. EPLI policies are not written as all-risk policies, meaning that insurers specifically state what claims or incidents are eligible for coverage under a policy. While many of these stated perils are consistent across insurers and policies, businesses should understand exactly what risks will be covered under their policy.
In addition to these factors, it is important to recognize that EPLI coverage is only one form of commercial liability insurance and should be part of an overall combination of insurance coverages that protect businesses from liability risks. Below are explanations of some other forms of commercial liability insurance that are different from-but complementary to-employment practices liability insurance.
EPLI vs. Directors and Officers (D&O) Liability Insurance
Directors and officers liability coverage, or D&O insurance, is a type of liability insurance that offers protection to an organization’s executives in the event that they are personally sued for acts related to their management of the organization. For example, members of a business’s board of directors could be sued over allegations of negligence, misrepresentation, or breach of fiduciary duty. A D&O policy could cover defense and settlement costs and protect executives from personal losses.
Like employment practices liability claims, claims that would trigger D&O coverage can be brought by employees against the leaders of the organization they work for. But EPLI and D&O insurance are fundamentally different forms of coverage. D&O insurance deals more with a business’s managerial practices, while EPLI is more targeted to specific individual employment issues such as discrimination, sexual harassment, or wrongful termination. This distinction also means that who brings claims under each policy will be different as well: EPLI claims come from employees and employment candidates, but D&O claims can also be brought by non-employees, such as clients, competitors, or shareholders.
EPLI vs. Workers Compensation Insurance
Both employment practices liability insurance and workers compensation insurance help businesses cover the cost of certain claims that arise from employees. However, the type of coverage is distinct between the two forms of insurance.
Workers compensation insurance helps provide benefits to employees who have been injured or become ill due to their work, but for employers, policies also include liability coverage to protect against suits from workers or their families arising as a result of illness, injury, or death on the job. Rather than covering physical or health harms, EPLI coverage addresses employee claims that they have been deprived of particular rights or protections in the workplace to which they are entitled.
EPLI vs. Employers Liability Insurance
Despite the similar names, employment practice liability insurance and employers liability insurance refer to different forms of coverage.
Employers liability coverage is closely related to workers compensation claims. If an employee is injured or becomes ill as a result of their job, a workers compensation policy will provide the employee with benefits for medical treatment, lost wages, and other select expenses. But if the employee alleges that their injury or illness resulted from the employer’s negligence, employers liability coverage offers additional protection to the employer by covering legal costs associated with the negligence claim.
As with workers compensation insurance, the key distinction between EPLI and employers liability insurance relates to the type of claim. Like workers comp, employers liability deals with physical injury, illness, and death on the job, while EPLI covers claims related to employees’ rights in the workplace.
What Does EPLI Cover?
EPLI policies are designed to protect businesses from costs associated with lawsuits related to employment practices. Any business with employees can take out an EPLI policy to minimize their risk in the event of a lawsuit from current employees, former employees, or employment candidates.
The policies typically provide reimbursement for legal defense costs in the event of a lawsuit and additionally can pay out judgments and settlements up to certain limits. This limits the personal financial risk to the business’s owners or executives and protects against the possibility that the business’s assets may be required to pay defense costs and damages.
While EPLI policies only cover liability claims related to employment issues, there are a number of issues that can result in a claim. Below are some of the most common causes of an EPLI claim.
Historically, discrimination has been one of the most common sources of complaints to the federal Equal Employment Opportunity Commission. A variety of federal laws and regulations prohibit unfair or unequal treatment based on categories including age, sex, disability status, race, national origin, religion, and more. Employees, former employees, and employment candidates who believe that they have been treated inappropriately based on any of these categories could bring a lawsuit.
Under federal employment law, sexual harassment is technically considered a subset of discrimination. Sexual harassment can include unwelcome sexual advances, requests for sexual favors, and other verbal or physical harassment of a sexual nature. Minor or offhand comments may not rise to the level of illegality, but employers must ensure that such comments or behaviors do not create a hostile work environment or affect decisions about an individual’s employment.
Retaliation occurs when an employer punishes or harasses an employee or employment candidate for asserting particular rights or participating in certain protected activities. For example, employers cannot retaliate against an employee who participates in an equal employment complaint, refuses to follow orders that would result in discrimination, or requests accommodations for a disability or religious practice. Employees are not exempt from discipline or termination if the employers have a non-retaliatory, non-discriminatory rationale.
Wrongful Evaluation, Discipline & Termination
Over the course of every employer-employee relationship, there are a number of different points where an employer may purposely or inadvertently engage in the types of behaviors that can draw legal challenges. Employees could bring a complaint if they feel they have been discriminated and/or retaliated against in the course of receiving performance evaluations, disciplinary action, or discharge from the organization. Employers that do not apply fair, consistent, and well-documented criteria for personnel decisions may be more vulnerable to employment practices claims.
Breach of Employment Contract
Employees may also bring legal claims against employers who have violated a written or implied employment contract (e.g. offer letters, employee handbooks, etc.). Unlike some of the categories above, which are based in employment and civil rights law, breach of contract claims do not need to arise from an alleged violation of rights, just the terms of a contract. For example, an employer failing to provide promised forms of compensation or working environment may lead an employee to bring a claim against the employer.
Mismanagement of Employee Benefits
Employment practices liability claims may arise when employees lose out on benefits like health coverage or retirement savings due to errors and omissions on the part of the employer when managing benefits plans. Even if unintentional, employers’ administrative and clerical errors can cause financial harm to their employees when they do not receive the benefits they are entitled to as part of their employment. In these instances, an employee may attempt to sue in order to recover damages for benefits that have been lost.
What Does EPLI Not Cover?
Employment practices liability insurance is a common but relatively narrow form of coverage, given that it only focuses on certain types of employment issues. This means that there are many risks that EPLI will not cover for a business, and even those issues that are employment-related may come with certain conditions or limits on coverage. Therefore, it is important for employers to understand the exact scope of EPLI coverage.
To begin with, employment practices liability insurance does not cover forms of liability that would be covered under other commercial insurance policies. This would include policies like general liability, directors and officers liability, or professional liability. EPLI coverage should be one component of an overall package of commercial insurance policies.
EPLI coverage also does not extend to certain employment law issues. Examples of issues that would not be covered under an EPLI policy include workers compensation, wage and hour claims under the Fair Labor Standards Act, and violations of other federal labor laws like the National Labor Relations Act and Occupational Safety and Health Act.
Finally, EPLI carriers may also have exclusions or limitations that prevent policyholders from having full coverage for costs associated with an employment practices claim. This is most common with payment of damages for a claim. For example, an EPLI policy may cover the costs of defending a breach of contract claim while not covering the cost of damages associated with that claim. Another example is when the employer has been found to engage in intentional illegal employment practices. Insurers typically will not pay criminal fines or penalties associated with a claim, and in some states, the insurer may actually be prevented by law from paying punitive damages. This is to discourage employers from engaging in illegal acts.
Is Employment Practices Liability Insurance Required?
EPLI coverage is not a legal requirement in most instances, but given the increasing number and cost of employment-related lawsuits in recent years, it is highly recommended for many businesses. Whether it’s hiring, compensation and benefits, workplace environment, discipline, or termination, every aspect of the employer-employee relationship could be subject to a lawsuit. In these cases, EPLI coverage is a valuable protection for any business with employees.
Most mid-size and larger businesses can benefit from EPLI protection since their size increases the likelihood that they will face employment claims. While the smallest businesses (those under 15-20 employees) may not be subject to some of the federal equal employment laws that larger businesses are, the cost of legal defense and damages in the event of a claim can be catastrophic for a business of smaller size.
While there is no law requiring EPLI coverage, it is worth noting that sometimes lenders or investors may prefer a business to carry coverage to minimize their own financial risk. Businesses should consult with their lenders or investors to understand what additional expectations they may have for coverage or employment management.
The Pros & Cons of Employment Practices Liability Policies
EPLI coverage is only one tool available for businesses to manage employment issues and their liability risks, and many businesses choose to forgo EPLI coverage altogether. Any business with employees must make their own evaluation of whether they should obtain employment practices liability coverage given their particular risk factors. Below are some of the key pros and cons to keep in mind when deciding whether to obtain an EPLI policy.
Pros: The Benefits of EPLI Policies
- Financial protection. The primary benefit of an EPLI policy is the assistance it can provide in limiting the out-of-pocket costs of employment lawsuits to an employer. Given the high costs of defending a suit-regardless of whether the employer has actually done anything wrong-this financial protection can be enough to prevent potentially catastrophic losses.
- Legal and employment expertise. Insurance companies typically connect policyholders with attorneys, human resources professionals, and claims examiners who have deep expertise in employment law and related issues. These experts can help businesses strengthen their personnel management policies and put forward an effective defense when claims arise.
- Addresses coverage gaps in other commercial insurance policies. A business is more likely to face an employment claim than a fire, but insurance coverage for employment-related issues is far less common in standard commercial insurance packages. While other commercial liability policies address legal risks from clients, customers, vendors, and select other stakeholders, EPLI is fairly unique in its focus on covering employment-related claims from current, former, or prospective employees.
Cons: What to Watch Out for With EPLI Policies
- Defense deductible and control. When claims arise, policyholders may find
EPLI policies often have fairly high deductibles, which means they could still pay a significant expense before coverage kicks in. This is also challenging because many carriers limit how much control policyholders have over the defense strategy, including whether a claim is settled or goes to trial. This means that in some situations, an insurer-appointed attorney could recommend a settlement that a policyholder would have to pay in full under their deductible.
- Limited scope of employment protections. Insurers also aim to minimize their own risk exposure, so EPLI policies often have exclusions or limitations on coverage that may leave businesses vulnerable to some employment-related claims. Many employment law matters, like wage and hour claims or organized labor issues, are not covered under standard EPLI policies and may require other forms of coverage. Policies may also have exclusions or limitations for situations like class action suits, the use of independent contractors or volunteers, or high-risk industries or business types.
- Doesn’t replace effective HR policies. EPLI coverage can help manage the risks when claims arise, but companies are best off finding ways to prevent employment issues in the first place. EPLI is no substitute for fair, well-documented HR policies that are aligned with local, state, and federal law along with industry best practices. Having these policies in place is critical for maintaining good relationships with employees and preventing claims. At the end of this guide, we’ll highlight some additional tips and resources for establishing effective HR policies and preventing employee lawsuits and EPLI claims.
Considerations for Certain Businesses
Any business with employees can benefit from an EPLI policy. Combined with other coverages like commercial liability, D&O liability, and workers compensation insurance, EPLI is an important component of an overall strategy to manage the risks of employee lawsuits against a business. However, the choices of whether to get an EPLI policy and how much coverage to purchase will vary based on a business’s characteristics and owners’ or managers’ tolerance for risk.
That said, some businesses should strongly consider purchasing EPLI policies. For example, businesses that have high rates of employee turnover may be at greater risk of facing lawsuits because their departing employees may have exited over issues that could form the basis of a legal claim. Businesses in industries that face more lawsuits from employees over employment practices-such as retail and services, which account for more than half of all EPLI cases-may also need to consider policies. Below we will cover a few other types of businesses that may want to take an especially close look at purchasing EPLI coverage.
Small Business EPLI
EPLI can be easy to overlook for many small businesses, but smaller firms are in fact one type of business that benefits from these policies the most.
One reason is that federal (and frequently state) laws protecting employee rights differ by business size. While some federal employment laws apply to all employers, others do not kick in until a business has a certain number of employees on staff (e.g. ADA protection and anti-discrimination law at 15, family and medical leave at 50). An employer that grows past one of these limits may end up increasing their exposure to potential legal action without realizing it.
Another key reason is that many smaller businesses may not have a dedicated HR department (or even a single HR manager). Without a dedicated function to set an organization’s employment policies, monitor potential issues, and resolve employee complaints internally, a small business may not be able to identify potential employment liability risks and defend against claims.
But one of the most basic reasons is resources: a small business is less likely to be able to withstand the cost of a lawsuit or settlement than larger ones. While the ongoing cost of an EPLI policy can seem like a luxury to a small business, it’s an important protection in case an employment liability issue does come up.
EPLI for California Companies
Every state has different legal considerations when it comes to employment liability, but California stands out for the volume and size of labor-related liability claims. Various court precedents and laws passed in recent years have given more protections to workers and created new tools to enforce labor and wage laws. One of the most consequential is the Private Attorney General Act of 2004 (PAGA), which allows an employee to bring certain employment claims both individually and on behalf of other employees. PAGA and California’s other employment protection laws have dramatically increased liability exposure for California businesses.
For business owners seeking an EPLI policy, quality employment coverage can be challenging to find in California. Insurers may decline to cover certain claim types in California due to the greater risk exposure-or else charge much higher rates than they would in other states. No matter the jurisdiction, employers should understand what their EPLI policies will and won’t cover and what the liability risks look like in their state, but this is especially true for California companies.
EPLI for Businesses Using Independent Contractors
With the rise of the gig economy in recent years, more businesses are relying on independent contractors instead of employees and enjoying greater flexibility and cost savings on benefits and tax withholdings. But independent contractors can bring their own set of issues with employment liability that make EPLI valuable even for businesses that work with independent contractors.
One major issue of late is employment classification. For example, recent lawsuits filed by Uber drivers in several states have argued that the company had misclassified their drivers as contractors rather than employees, depriving them of certain rights and benefits. While Uber is still able to classify drivers as contractors, the company still paid out settlements for tens of millions of dollars. This is just one notable example of a growing risk for companies that rely on contractors, who could find themselves liable for employment practices issues if their contractors are misclassified.
Not all insurers extend EPLI coverage to claims involving independent contractors, but it is becoming a more common consideration in light of businesses’ increasing use of freelancers, gig workers, and contractors. Businesses that rely heavily on contractors should be sure to seek out EPLI policies that will cover both traditional employees and contractors.
Employment Practices Liability Insurance Costs & Premiums
When learning about commercial insurance coverages, many business owners’ first question is how much a policy will cost. Insurance expenses can add up, but having coverage in place to guard against risks is crucial for protecting businesses from costly claims. In light of the cost and growing frequency of employment liability cases, EPLI coverage is a wise investment, but businesses should understand how much coverage they need and what it will take financially to obtain enough insurance. In this section, we will discuss EPLI costs, including some of the key factors that businesses and carriers must consider when establishing a policy.
How Much Does Employment Practices Liability Insurance Cost?
Like other forms of commercial insurance coverage, employment practices liability insurance costs will look different for each business. However, many estimates online place the range of costs for small and medium-sized businesses at between around $1,000 and $3,000 per year.
The smallest businesses are most likely to pay below that range, and costs typically scale up with the number of employees and the size of the business’s payroll. However, larger businesses may be able to realize lower per-employee costs due to their scale, greater resources, and more professional HR systems.
The most reliable way to understand the cost of employment practices liability insurance is by speaking directly to a potential insurance carrier, who can offer detailed estimates of what coverage will cost based on factors specific to your business. Many of the factors that a carrier considers when setting EPLI rates will be discussed below. While some of these factors, like business size, location, and industry, are difficult to change, you can work with your insurer to adjust components of your policy, like deductibles or limits, to help manage costs.
How Much EPLI Coverage Do I Need?
EPLI carriers offer varying levels of coverage to policyholders depending on the business’s needs. Many small business EPLI policies may come with limits as low as $50,000, but frequently, coverage at higher levels-up to $1 million or more-can be purchased if needed. Given that the average resolution of a federal Equal Employment Opportunity Commission claim is around $30,000 and the cost of employment lawsuits can reach well into the six figures, having an adequate amount of coverage is critical.
However, the right level of employment practices liability coverage will vary for each business. Many of the factors discussed in the next section, on policy costs, are the same ones that a business should keep in mind when evaluating their own coverage needs. In particular, employee salaries and workforce salaries are critical factors to keep in mind: businesses should ensure that their coverage can handle the size of a claim from highly paid employees or from a group of employees. But ultimately, business owners also have to determine their own tolerance for risk based on advice from their insurers and financial or legal advisors and purchase coverage accordingly.
Factors That Affect the Cost of EPLI Coverage
The costs of different commercial insurance coverages are frequently based on factors specific to each covered business, and EPLI is no different. Many of the factors affecting cost are difficult to change because insurers may set premiums based on set factors like business size, industry, or location. However, there are steps businesses can take to minimize the likelihood of claims and keep their costs lower. Below we will cover some of the key factors that affect EPLI cost.
Number of Employees & Employee Turnover
One of the first factors an EPLI carrier will assess when offering a quote for coverage is the state of the insured’s workforce. A larger workforce naturally increases the possibility that a business will face a claim from a current, former, or prospective employee, and as such, businesses that employ more people will typically pay a higher cost for coverage.
But carriers may also look at another factor in the workforce when setting rates: employee turnover. Businesses that have higher proportions of employees who cycle through the organization quickly are perceived to be more likely to face employment practices claims. Short-tenured employees may be a sign that workers are dissatisfied with how they are treated and therefore likely to bring a claim later. As such, employers with high rates of turnover may need to pay higher premiums for EPLI coverage.
One additional factor related to a business’s workforce that may affect the cost of coverage is how much workers earn. Many judgments or settlements in employment cases, especially for matters like wrongful discipline or wrongful termination, are based on the amount of wages that the employee lost as a result of the organization’s action. For businesses with high-salaried workers, this may necessitate higher policy limits-and with them, higher costs to obtain coverage.
Industry & Business Type
Different industries have different levels of risk exposure for EPLI claims, and carriers will tend to price their EPLI products accordingly. For example, the entertainment industry has been roiled in recent years over sexual harassment allegations stemming from the #MeToo movement. As a result, many EPLI carriers are scrutinizing entertainment businesses more closely because of the potentially high costs of claims, and many entertainment businesses are now facing higher premiums or being denied coverage altogether. Other industries with greater need for EPLI coverage-and higher costs-include fields like retail and food service, where gender discrimination, harassment, and unfair wage practices may be more common, and professional services, whose employees may be more likely to challenge employers on issues like wrongful termination or failure to promote.
Location is a critical consideration in the cost of EPLI policies because states and localities have different laws, regulations, and legal precedents related to labor and employee protections. These legal frameworks can affect how likely it is that an employer will face claims, how likely it is that a claim will be resolved in favor of the party bringing the claim, and how much an employer found liable could have to pay in a judgment or settlement. From limits on compensatory or punitive damages to policy on rapidly evolving issues like sexual harassment, recreational drug use, or biometric data privacy, each jurisdiction offers an entirely unique set of employment laws and risks. EPLI carriers will charge more-or limit coverage-for policies in locations where claims are more common and more costly, like California and New York. On the other hand, in less regulated states like Texas, North Carolina, or Florida, EPLI policies will typically cost less.
EPLI carriers want to cover employers who take their employment practices responsibilities seriously and operate within the law and in light of best practices for HR management. Carriers may ask for evidence that an employer has certain policies and procedures in place before even agreeing to cover the employer. And even with those policies To minimize their own risk and help keep EPLI costs manageable, employers should have in place regularly updated and well-vetted employee handbooks and HR policies, a strong training program on employment law and topics like discrimination or sexual harassment, and fair, transparent, compliant processes for resolving employee complaints or disputes.
Past Claims History
A high number of recent employment practices liability claims is a key signal to insurers that an employer may be riskier to insure against such claims in the future. If a business has a track record of facing complaints, insurers will be more cautious in setting their own risk exposure and place tighter limits on coverage, require higher deductibles, or charge more in premiums.
Finding the Best EPLI Policy
As discussed elsewhere in this guide, the landscape of employment liability cases has changed over time. With rapidly evolving employment issues-from greater attention to sexual harassment and racial discrimination to employment classification for gig workers to COVID-19 protections and hybrid working arrangements-and growing numbers and costs of employee lawsuits, businesses and insurance carriers have been forced to adapt to navigate these challenges.
For many policyholders, good, affordable EPLI coverage can be increasingly difficult to find as a result. Insurers are less inclined to offer EPLI policies because risk levels are increasing, and those that do may limit their coverages, raise premiums, or have onerous claims processes to reduce their risk exposure. This makes it especially important for businesses to evaluate their potential EPLI insurers carefully, and in this section, we will talk about some of the key factors to consider when finding the best EPLI policy for your business.
Comparing Employment Practices Liability Insurance Carriers
As with other forms of commercial insurance, businesses must consider a variety of factors when choosing the right EPLI policy. Below we will cover some of the key factors to keep in mind, along with questions to ask and ways to get additional information about your options.
Coverage Options & Policy Limits
Obtaining the right type and amount of coverage should be the primary consideration for any business as they look for employment practices liability insurance. Coverage needs will vary based on factors specific to each business, so you should work with insurers to identify your risk exposure and choose coverage options that make sense for your business.
One important question to ask is what specific employment risks are covered under each insurer’s policies, as you do not want to be surprised if you face an employment claim for which you are not actually covered. You should also evaluate how potential EPLI policies mesh with other forms of commercial insurance coverage you may have, including whether it makes sense to obtain EPLI coverage as an endorsement for an existing policy/package or as a standalone coverage.
Policy limits are typically negotiable and can be set based on your own tolerance for risk. However, higher levels of coverage typically come with higher premiums, and some EPLI carriers may set an overall or per-claim cap on coverage. In these cases-or if your business has high risk exposures in general-you may also want to consider umbrella liability coverage for additional protection.
Claims & Defense
Because EPLI claims typically involve legal proceedings that may take a long time to resolve, the claims process for employment liability can be somewhat more intensive than other forms of coverage. An EPLI carrier may need you to provide extensive documentation, communication records, and other information when they first agree to provide coverage and when processing claims. You should be aware of your insurer’s requirements for handling claims and work to ensure that your organization maintains thorough, accurate, and legally compliant personnel records and policies.
Another common aspect of EPLI policies to consider is how the carrier addresses legal defense. In many cases, the carrier assigns a defense attorney who specializes in employment law to handle the case, but in others, you may be allowed to use your own attorney to handle the claim. Each option can provide pros and cons: an insurer-assigned attorney may have more specialized expertise and can be helpful if your business does not already have an extensive relationship with legal counsel, but some businesses may feel more comfortable working with attorneys with whom they have a preexisting relationship.
Premiums & Deductibles
Any business owner will be mindful of their overall costs for insurance products, as commercial insurance policies can be a relatively costly ongoing expense. Employment practices liability insurance is no different, and especially considering it is usually layered on top of other forms of insurance, business owners naturally will look for the best value in their coverage.
Two important considerations in working out the cost of a policy are the policy’s premiums and deductible. Insurance carriers set premiums based on the amount of coverage that they are responsible for providing. This means that policyholders can get lower premiums by obtaining lower levels of coverage or by taking on higher deductibles. But the potential downside of this approach is that in the event of a claim, the policyholder will be responsible for more of the cost.
When shopping for EPLI, policyholders can both compare quotes between carriers to find the best deal for a desired level of coverage or work with particular carriers to look at different options for premiums and deductibles to ensure the best value for your budget.
Company reputation is an excellent way to gauge the quality of a potential insurer. Information about an insurance company from other policyholders, industry experts, and guides like this one can give you a better sense of what a carrier does or doesn’t do well, whether they are well-suited to your business size and type, and other valuable details. This information can help you quickly hone in on some of the best providers to fit your business’s EPLI needs.
Two great sources of information about company reputation are the Better Business Bureau and J.D. Power. Both publish information about insurance providers based on customer satisfaction, but in slightly different ways. The BBB evaluates companies’ fairness and trustworthiness based on customer complaints and the company’s response, while J.D. Power issues annual surveys of customer satisfaction for a variety of insurance products.
Financial strength is a common criterion used to compare insurers because policyholders want to be sure that their insurers have adequate financial resources and track record of paying out claims reliably. Insurers that do not have good financial strength may be less likely to pay out claims as promised, which could leave the policyholder responsible for claims.
Most major national insurance companies have enough resources to pay claims reliably, but if you are looking at a smaller or more specialized carrier, you may want to pay more attention to the financial strength ratings. One of the best ways to evaluate financial strength is to look at an insurer’s ratings from credit ratings agencies like A.M. Best, Moody’s, or Standard & Poor’s. These organizations evaluate different companies’ financial resources and practices using proprietary formulas to issue ratings of companies’ financial strength.
Best Employment Practices Liability Insurance Companies
Travelers (Best EPLI Policies Overall)
Travelers is one of the U.S.’s leading commercial insurance providers, with a comprehensive set of coverages including a strong EPLI product with multiple customizable components.
- Multiple options for obtaining coverage and defending claims
- Excellent financial strength ratings
- Potentially greater out-of-pocket defense costs for non-settled claims
- No online pricing information available
Travelers offers multiple options for obtaining EPLI coverage. Employment Practices Liability+ is a coverage that can be added to a standard Travelers BOP to cover legal defense expenses and damages. Through Wrap+, interested businesses can apply for EPLI insurance simultaneously with other commercial coverages like D&O insurance, fiduciary liability, cyber risk insurance, and more. With both forms of coverage, Travelers offers an excellent library of employment resources online and access to a legal helpline to consult with expert employment attorneys.
Travelers offers some choices for policyholders in how claims will be managed. When setting coverage, a policyholder can elect either a “Duty to Defend” approach or a reimbursement approach. Under the former, Travelers will directly appoint an attorney to defend the policyholder, and under the latter, the policyholder can choose an attorney and be reimbursed for costs. Depending on the policy, Travelers may not require a policyholder to accept a settlement, but the policyholder could incur additional costs for taking a claim to trial.
Businesses interested in obtaining information about pricing from Travelers will need to identify a nearby agent through the Travelers website. An agent will reach out to discuss tailored options for EPLI and other commercial coverage based on the business’s unique risk profile.
When compared to other insurers, Travelers holds a good reputation in the commercial insurance industry. The company’s J.D. Power customer satisfaction rating is an 831 out of 1,000, which beats the category average for small business insurers. Travelers additionally holds an A rating with the Better Business Bureau.
The financial strength of Travelers is arguably greater than that of any commercial insurer evaluated for this guide. Travelers is the second-largest business insurer by premiums written, and its financial strength ratings-an A++ from A.M. Best, an Aa2 from Moody’s, and an AA from Standard & Poor’s-can match or better any competitor in the market.
Due to the multiple options available for setting up coverage and defending claims, Travelers provides a great deal of flexibility in its EPLI policies. These attributes, along with Travelers’ excellent financial strength, solid reputation, and quality HR resources, make Travelers our pick as having the Best EPLI Policies Overall.
Chubb (Best EPLI for Larger Businesses)
Chubb is the U.S.’s largest commercial insurer by premiums written, and its EPLI policy is another example of Chubb’s comprehensive offerings with excellent customer service and wraparound risk management support.
- Flexibility in handling of legal claims and more comprehensive coverage
- Reimbursements available for risk prevention measures
- Excellent reputation and financial strength
- Chubb insurance products tend to be more expensive than competitors’
- Coverage may be better suited to larger businesses and professional industries
Chubb offers a number of standalone employment practices liability policies, many of which are tailored to industries including law, professional services, and financial institutions. Chubb’s policies include coverage for top-notch legal defense along with resources to prevent employment issues through the company’s ChubbWorks tool and access to a network of preferred consultants, attorneys, and HR professionals. Chubb even offers limited reimbursements to policyholders who implement preventive measures using vendors from that network.
Chubb stands out from the competition for its comprehensiveness and flexibility on employment claims. Chubb defines wrongful employment acts more broadly than many competitors in recognition of the fact that the legal landscape around employment liability is rapidly changing, and for some policies, exclusions that are common with other carriers may not apply on a Chubb policy. Additionally, unlike some other insurers, Chubb gives more discretion to policyholders not to settle claims and instead take claims to trial if they believe they have been wrongly accused, even though that may increase risk.
One downside of most Chubb policies is that they tend to be more expensive than competitors. For EPLI, the flexibility and level of coverage that Chubb offers exceeds what many other carriers provide, but this comes at an additional cost. Chubb’s EPLI coverage may be better suited for larger businesses for this reason.
Chubb is one of the top insurers when it comes to reputation, being known for high-quality service and expertise in a variety of industries and insurance product lines. J.D. Power’s most recent customer satisfaction study gave Chubb an 838 out of 1,000, the second-highest score of the companies evaluated in this guide.
One of Chubb’s most impressive features is its financial strength. Chubb is the largest commercial insurer in the U.S. by direct premiums written annually. And on top of this massive presence in the commercial insurance market, Chubb enjoys excellent marks for financial strength from the ratings agencies, including A.M. Best’s top rating of an A++, Standard & Poor’s third highest rating of AA, and Moody’s fourth highest rating of Aa3.
With its comprehensive and flexible coverage and premium customer experience, Chubb is a great choice for bigger businesses that face higher levels of risk. For that reason, Chubb is our pick as offering the Best EPLI for Larger Businesses.
State Farm (Best EPLI for Small Business)
State Farm is one of the country’s top small business insurers, and its EPLI product is another excellent offering that delivers quality employment resources to manage risks.
- Convenient shopping experience with packages for other commercial coverages
- High-quality HR resources to manage employment risks
- Top ratings in customer satisfaction and financial strength
- Limited information available about pricing and policy terms online
EPLI coverage is one of many small business insurance policies offered by State Farm. State Farm offers a number of packaged commercial policies tailored to businesses in different industries, and depending on the state and size of the employer, EPLI can be included. This customizability and convenience is a positive for business owners seeking a simple solution for purchasing EPLI and other forms of commercial coverage.
One particularly helpful benefit of State Farm’s EPLI policies is its specialized HR support services for small businesses. Because professional HR services or dedicated HR staff can be too expensive for some small businesses, State Farm makes resources and consultations available to its policyholders. State Farm’s on-demand HR support and library of forms, handbooks, policies, and training materials can help businesses ensure that they do not face employment claims.
Information about EPLI costs with State Farm is only available from State Farm agents. Interested businesses will need to contact a local representative or request a contact from State Farm’s website to learn more about their pricing and coverage options.
State Farm also delivers an excellent reputation. J.D. Power’s customer satisfaction survey recently rated the carrier at an 846 out of 1,000, which places it first among the companies included in this guide and second overall among all commercial insurance providers. State Farm additionally carries an A+ rating with the Better Business Bureau.
Finally, State Farm offers some of the best financial strength in the industry. With an A++ rating from A.M. Best-the highest available-and ratings of AA from Standard & Poor’s and Aa1 from Moody’s, State Farm is considered a highly reliable payer of claims.
With its convenient coverage options, excellent reputation, strong financials, and HR support, State Farm’s product can satisfy many businesses’ needs and is our pick as the Best EPLI for Small Business.
Nationwide (Best Legal & Employment Resources)
Nationwide is a well-rounded EPLI provider, offering a mix of quality coverage, helpful HR management and legal resources, and solid reputation and financial strength.
- Higher minimum EPLI policy limits than many other insurers
- Free employment law legal advice available with purchase of policy
- Policies available as endorsement or standalone
- Average customer satisfaction ratings
As one of the premier insurers in the U.S., Nationwide delivers a strong EPLI product. Nationwide began writing EPLI policies in 2011 and has grown to cover more than 8,000 businesses.
Nationwide will occasionally allow EPLI to be purchased as a standalone coverage but primarily offers EPLI policies as an endorsement to its business owners policies and general liability products. This is a convenient option if a business also needs to obtain related forms of liability coverage like D&O and umbrella coverage. Nationwide’s EPLI policies cover claims for wrongful termination, wrongful refusal to employ, invasion of privacy, defamation, and select other issues. Nationwide’s policies are written on a claims-made basis and have some flexibility to set tail coverage. The company sets minimum EPLI limits of $50,000-which is higher than many other competitors-and has capacity for limits up to $10 million in primary coverage for larger businesses.
Nationwide offers helpful legal and HR resources for EPLI policyholders to avoid and manage claims. Nationwide partners with a national employment law firm to connect policyholders with legal advice and additionally has a collection of HR forms and policies available online. These services are offered at no additional charge to policyholders. In liability claim situations, Nationwide will also hire defense counsel from its own network of employment law specialists.
Nationwide has a solid reputation, with J.D. Power rating the insurer at an 828 out of 1,000 in its most recent customer satisfaction survey, in line with the category average of 829. Nationwide also holds an A+ rating with the Better Business Bureau. Additionally, Nationwide is one of the few insurers evaluated for this guide that holds accreditation with the Better Business Bureau, which means that the company meets the BBB’s highest standards for fairness, honesty, and ethics.
Nationwide has good financial strength ratings with the major credit agencies. A.M. Best and Standard & Poor’s each offer Nationwide an A+ rating on their respective scales, and Moody’s rates Nationwide at an A1 level.
Nationwide is an excellent choice for EPLI coverage by many measures, but it stands out for the quality of the HR and legal advice companies can access with their policy. This makes Nationwide our pick as offering the Best Legal and Employment Resources.
The Hartford (Best Value)
The Hartford stands out for offering limited EPLI coverage in its standard Business Owners Policies in addition to enhanced coverage, along with several other unique features not available from other carriers.
- Limited amount of EPLI coverage available in standard BOPs, with option to obtain more coverage
- Coverage for non-employee claims, wage and hour claims, and other unique needs
- Below-average customer satisfaction ratings
The Hartford has been providing insurance for more than 200 years and is a trusted insurance partner for small businesses in a variety of industries.
For many businesses, The Hartford includes up to $25,000 in employment practices liability coverage on its BOPs at no additional cost. Beyond that, standalone coverage is available for publicly traded companies, while private companies can obtain EPLI as part of a customizable package of commercial coverages that can also include D&O liability, fiduciary liability, and more. Businesses may additionally be able to obtain up to $1 million in employment practices liability coverage. The Hartford offers cheaper rates for commercial insurance policies in general, so the fact that EPLI can easily be packaged with other coverages makes The Hartford a good value in this category.
The Hartford offers several aspects of coverage that may not be available in other EPLI policies. These include coverage against claims brought by non-employees, the option to reject a settlement in favor of defending against a claim, and inclusion of wage and hour defense in the policy. It is important to note that The Hartford’s coverage options may differ in California, where the company offers a specific policy to account for the state’s unique labor laws. In addition to the coverage components above, The Hartford provides a proprietary website with training materials, resources, and information to support businesses’ HR management needs.
One weakness of The Hartford relative to the competition is its reputation among customers. J.D. Power’s most recent small business insurance study rated The Hartford an 803 out of 1,000. This figure fell below the category average of 829 and earned The Hartford the lowest score in the category for the second year in a row. However, The Hartford does hold an impeccable A+ rating with the Better Business Bureau, suggesting that the insurer is fair and reliable in dealing with customers.
The Hartford has solid marks for financial strength from the ratings agencies. A.M. Best and Standard & Poor’s each award The Hartford an A+ rating on their respective scales, while Moody’s rates The Hartford at an A1 level. These figures reflect The Hartford’s long track record of reliability and the substantial size of its commercial insurance business.
By including a limited amount of EPLI coverage in its standard BOPs, including coverage that may be excluded with other carriers, and making it easy to obtain additional coverage in combination with other forms of commercial insurance, The Hartford earned our designation as offering the Most Affordable EPLI Policies.
How to Avoid Employee Lawsuits & EPLI Claims
Even with EPLI coverage, lawsuits and claims can be expensive, and depending on the policy, employers may have a hard time having coverage approved in certain situations or claim types. For this reason, the best course of action for any business is to work hard at preventing claims in the first place. Below are some of the most important steps businesses can take to ensure that they follow the law, treat employees fairly, and avoid costly claims.
Strong Personnel Policies & Employee Handbooks
If an employer can point to established standards for personnel management, it is more likely that they will treat employees within the law and be less susceptible to claims of bias, discrimination, or retaliation in personnel actions. On the other hand, in the absence of documented personnel policies, supervisors and employees may not know their obligations and rights under the law and within the organization.
One of the most important policies to establish is a zero-tolerance approach to discrimination and harassment, as this is a major risk source for potential claims. All employees should be trained on what constitutes discrimination or harassment and how to report it in the workplace. Employers should also establish policies around employee performance management and dispute resolution in the workplace, which can help ensure fair and consistent treatment and help proactively identify and resolve issues that could lead to claims later on.
One of the most critical policies to have on file is an employee handbook. These documents should acknowledge the employer’s obligations to employees under state and federal law, such as equal employment opportunity. In addition, handbooks should also clearly articulate the standards of conduct or behavior expected of all employees to help ensure consistent treatment. Once the organization’s managers and HR department have drafted a handbook, it should be vetted by a legal expert in the jurisdiction where the business operates to be sure that it is compliant with the law. The handbook should also be reviewed on a regular basis to reflect any changes in the law or organizational policy. Finally, all employees should receive and be aware of the contents of an employee handbook.
Complete & Accurate Employee Documentation
In the event that a claim goes to trial, one of the main factors that will help an employer successfully defend against an employment practices liability claim is thorough employee records. Documents that include details of the employer and employees’ interactions, particularly as they relate to issues like hiring or performance management, can be a vital source of information when an employer is accused of wrongdoing. This documentation can help prove that employers’ actions were in compliance with the law or established organizational policies and were made in good faith without discriminatory or retaliatory intent.
The need for accurate and timely records is valuable throughout the employment relationship. Below are some of the materials to consider keeping on file:
- Hiring: Job descriptions, employee application materials, interview questions and notes, background checks, offer letters, salary information, etc.
- Employee activity: Performance reviews, disciplinary actions, time and attendance records, requests for leave or time off, etc.
- Complaints and investigations: Allegations made, employer response, investigation findings, etc.
- Separation: Disciplinary or performance records, severance agreements, etc.
Businesses should develop record-keeping systems that are in line with the law and provide for thorough, accurate, and timely documentation. Employees and especially supervisors should be trained on what employment records to document and expected to keep files up-to-date.
Consultation with Legal & HR Professionals
Larger organizations may have the resources to maintain their own human resources and legal departments, but smaller and mid-sized businesses often do not. Without dedicated expertise on personnel issues, these businesses may be leaving themselves vulnerable to potential employment practices liability claims.
Many law firms and HR professionals will consult for organizations to establish or review policies and procedures around employment issues. Using a consultant can help make sure that the organization’s handling of employment issues reflects best practices and requirements under the law.
These consultations can potentially be a significant expense, especially for smaller businesses, but they can pay off in the long run for minimizing employment risk. If the cost of hiring a legal or HR consultant is worrying, many employment practices liability insurance carriers will include access to libraries of policies and procedures and consultation with lawyers or HR professionals as part of their policies, which can help businesses save on costs.
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