What is EPLI Insurance & Who Needs It?

September 27, 2023

There always will be risks in managing employees since potential lawsuits hide behind every employment decision.

In general, it is more likely for a business to have a claim that is employment-related than to have a fire. So while companies seldom skip fire protection, why would they ignore the EPLI policy and the costs related to it?

More often than not, big companies have a considerable number of insurance policies in place, including liability insurance. However, although big companies are prepared for the cases in which employees file a claim if you are a small business, that doesn’t necessarily mean you won’t need EPLI coverage sooner or later.

Insured companies can save money using the services provided by most employers that practice liability insurance policies. Adding such a policy into your risk management package, be it a GL (general liability policy) or BOP (business owner’s policy), can protect your company or business from lawsuits.

“From the moment you interview a potential candidate, your company might be at risk of an employment-related claim.”

What Is EPLI Insurance?

Employment practices liability insurance, by definition, protects employers and companies from potential losses and expenses when an employee or a third party sues you for work-related incidents such as accidents, illness, or death.

An employment practice liability insurance protects employers and ensures coverage for their employees’ claims, ranging from simple errors and omissions to more severe issues like wrongful dismissal or harassment-related cases. Simply put, it provides extensive insurance protection from a broad range of claims and potentially even lawsuits that employees can bring against a company or any of its subjects.

If you have more than one employee, that might as well mean that you may need employers to practice liability insurance in the future. Rather than exposing your business to potential financial dangers, you can prepare by getting EPL coverage.

Today, businesses are not required to have employers’ liability insurance by law. That said, it can be reasonable, and in some cases even viable, to have such coverage to prevent any potential claims from former employees.

What Does EPLI Cover?

There are many potential risks employers can face when dealing with professional liability and employment-related claims. EPLI coverage can protect your company from hazards usually associated with feuds with former employees. 

What Is EPLI Insurance & Who Needs It - infographics

Source: TrustedChoice

As a rule, an Employment Practice Liability policy can cover the business from expenses based on personal grievance claims typically alleging problems such as:

  • Breach of the employment contract. Happens when an employer breaches one or multiple terms of the employment contract.
  • Negligent decisions made by the HR department. This claim type also involves negligent hiring, potentially damaging prospective workers.
  • Unreasonable, unfair, harsh, unjust, or otherwise unlawful dismissal or termination of employment.
  • Errors and omissions. Type of insurance that covers businesses against possible liabilities regarding omissions or errors in performance or professional duties.
  • Pandemic or illness-related layoffs or termination due to a medical condition.
  • Deprivation of career opportunity or failure to promote. This claim type is related to failure to provide specific training that could otherwise advance an employee’s career.
  • Third-party claims. These are usually filed by individuals that are only distantly related to the workplace incident.

Other insurance policies provide coverage for losses from claims filed by workers who became ill or injured as a direct result of their employment. If an employee feels like their workers’ compensation doesn’t cover their expenses or losses, EPLI coverage will cover expenses that are not included in the workers’ coverage.

What EPLI Doesn’t Cover

Undoubtedly, the policies revolving around employment liabilities only cover certain situations or circumstances. 

However, multiple exceptions to EPLI policies can’t be covered. These include but are not limited to fraud, advantages or profit gained illegally, law violations, and similar fraudulent or criminal acts. Moreover, some business types are optional to have EPLI run it without impediments. These usually include the following:

  • Companies with only one hired worker or if a business has an employee who owns more than 50% of the shares are not subject to EPLI claims.
  • Sole traders, who work alone and simply don’t have any employees or any other kind of hired labor, are not risking being sued.
  • Family Members, companies where employees are direct family members are also unlikely to get sued.
  • Public bodies, such as public organizations, government, and health services, are all insured differently.

Although the risk of getting sued in these cases is low, companies are still highly recommended to opt for or consider getting EPLI coverage to minimize potential financial risks or damages.

How Expensive Is EPLI?

The costs of EPLI insurance coverage and premium costs can differ by state. On top of that, prices on policies can vary based on how big your business is and how many employees or hired workers it has.

Similarly, the costs related to EPLI can also be different judging by the industry company operates in. Other risk factors can also influence the final price of an EPLI policy. However, it would help if you were prepared with defense costs reaching nearly $50,000 or even as high as $70,000 in some instances. So, an EPLI policy is a better option than facing legal expenses.

As a rule, most of the EPLI claims settle early. However, in some specific cases, lawsuits can take months and even years to resolve, which can be pretty damaging to the financial side of your business or company.

It is common for businesses of all sizes to be targets of lawsuits, and protecting what’s yours is paramount. Opting for a policy from an insurance company that offers EPLI coverage will be an excellent first step towards protecting your business which won’t let it become an EPLI statistic.

Marian Sahakyan

Marian Sahakyan is a content writer and a journalism graduate from California State University, Long Beach with a background in marketing as well as UI and UX design. Marian’s previous writing and reporting has been featured in several community newspapers throughout Southern California.