When new clients call Joe Beachboard about a lawsuit filed against them, one of his first questions is whether they have employment practice liability insurance (EPLI).
The most common answer, he said, is “I’m not sure — let me check on that.”
“I have found that many HR professionals don’t know whether they have EPLI,” said Beachboard, an attorney with the Beachboard Consulting Group in Palos Verdes, Calif. “This can be because EPLI is often included as part of a broader insurance coverage package. And those responsible for obtaining insurance coverage for an organization may not communicate the coverage of the organization’s insurance with human resources.”
Even companies with strong HR practices can be at risk of employment-related lawsuits. Smaller and newer businesses are particularly vulnerable as they may lack dedicated HR departments or formal policies. Employment lawsuits can be costly, time-consuming and damaging to a company’s reputation and productivity. EPLI can help mitigate these risks.
Companies buy EPLI to protect against claims such as sexual harassment, sex discrimination, race discrimination, disability discrimination, religious discrimination, and wrongful termination.
Many consider this insurance essential for businesses — of all sizes — to protect against the rising risk of employment-related lawsuits. It can protect a company’s finances, preserve the company’s reputation, and ensure that legal costs and settlements don’t threaten business continuity.
Liability insurance is nearly universal among the organizations surveyed, according to SHRM’s June 2026 Current Events Pulse survey. Over nine in ten (94%) HR professionals said their organization currently has liability insurance, while 4% said their organization does not have it and has no plans to obtain it, and 2% said their organization does not have it but is considering obtaining it in the future.
Among organizations with coverage, usage remains limited. Two in five (40%) said they have used their liability insurance rarely over the past two years, and 28% said they have never used it. Another 27% said they have used it occasionally, while 4% said they had utilized it frequently, and less than 1% said they had done so very frequently.
Why Businesses Need EPLI
In today’s litigious environment, the purchase of EPLI should be the default position, said Leonard Surdyk, an attorney with Surdyk & Kachoyeanos in New York City.
“An HR person who does not recommend EPLI is probably breaching a fiduciary duty to the company,” said Surdyk.
EPLI is not workers’ compensation, which covers medical costs and lost wages for workers injured on the job.
It’s not errors and omissions insurance, which protects against claims of professional mistakes or negligence affecting clients, not employment-related claims.
And it’s not directors and officers insurance, which protects executives and board members from lawsuits related to management decisions. It may cover employment issues for directors and officers, but not against regular employee claims.
Beachboard pointed out that EPLI policies require that the carrier be notified within a fixed period about a possible covered claim.
“It is critical to understand these deadlines and what is considered a covered claim — as often they will include demand letters and even employee requests” for staff files, he said. “Failure to abide by the policy terms regarding notice can result in loss of coverage, which can be a very expensive mistake.”
Costs
EPLI is often included as part of a broader insurance coverage package and is a relatively inexpensive add-on. EPLI can be bought as a stand-alone policy or bundled with a business owner’s policy or general liability insurance.
EPLI costs are typically rated based on the number of employees and factors such as claims history, geographic location, and industry are considered. Generally, the price is in line with other corporate insurance policies.
An important thing to check, Beachboard said, is the deductible — or what carriers refer to as the retention. In recent years, these costs have increased. While $25,000 to $50,000 was common 10 years ago, today those like Beachboard see retention costs more frequently in the $50,000 to $150,000 range.
Financial difficulty would be one of the few legitimate reasons to decline the coverage, Surdyk said. Companies that have fewer than five employees or that have employees who are relatives may also reasonably decide the insurance is unnecessary.
EPLI often limits which lawyer or law firm handles a case. Insurance carriers typically negotiate rates with the law firms they retain to handle these cases — rates significantly lower than any individual employer could achieve — sometimes 50% or less of an attorney’s standard rate.
If the employer’s regular counsel will not be assigned to the matter, it is critical for employers to play an active role in the selection of counsel. While what may be at risk is the insurance company’s money, it is the employer’s reputation that is on the line. Often carriers will be interested in resolving these matters as cheaply as possible, whereas many employers assert that they did nothing wrong and want to defend their actions. This can create tension.
This requirement to use a “panel counsel” may apply even if an employer has worked with its in-house attorneys on a matter for months or longer before the matter becomes a claim, said Jonathan Segal, an attorney with Duane Morris in Philadelphia and New York City.
“This may result in a disruption of strategy,” he warned. “It also may create duplicative work for the employer to reeducate the insurance counsel or pay the [in-house attorney] to educate insurance counsel.”
What Is Covered?
It is important to understand what is and isn’t covered with EPLI.
EPLI can cover claims such as these:
- Allegations that an employee was fired in violation of federal, state, or local laws.
- Claims of sexual harassment, bullying, or other offensive conduct by supervisors, co-workers, or third parties.
- Claims that an employee was unfairly denied advancement or re-employment.
- Disputes over pay, overtime, or benefits.
But Beachboard cautioned that exclusion of wage and hour claims from EPLI is common. EPLI policies cover defense costs as well as settlements, judgments, and arbitration awards. Some policies offer limited coverage for wage and hour law violations and discrimination claims brought by nonemployees.
Most larger companies have an ongoing inventory of claims by employees which, subject to a deductible, would be covered by EPLI policies.
For smaller companies, employment claims are less frequent but can come at any time. Most companies make the purchase to protect against the possibility of a potentially catastrophic claim.
“A smaller company could find itself defending a claim against its president or owner for sexual harassment that could threaten the very existence of the company,” Surdyk said.
Employment-related torts — like defamation, invasion of privacy, or false arrest — are also covered, along with retaliation claims. EPLI policies do not typically cover breach of written contract damages or stock options that a company failed to issue.
While punitive damages frequently constitute the largest part of an employment verdict, they’re generally excluded by the policy’s terms or under state law.
Other Limitations
Insurance companies often retain significant control over the decision on whether to settle, Segal noted.
“If the company does not follow the insurance carrier’s recommendation, it may lose all or some of the coverage,” he said. “At times, this results in the insurance company’s commanding a settlement, even though there are good reasons for the employer to litigate to win.”
Dana Wilkie is a freelance journalist in Ormond Beach, Fla.
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