Here's something that keeps business owners up at night: you can do everything right as an employer and still get sued. Maybe a disgruntled employee claims they were fired unfairly. Perhaps someone alleges discrimination during the hiring process. Or a former worker files a harassment complaint months after leaving your company. Even if these claims are completely baseless, defending yourself can cost tens of thousands of dollars—sometimes more than $75,000 before you ever see the inside of a courtroom.
That's where Employment Practices Liability Insurance (EPLI) comes in. Think of it as a financial safety net that catches your business when employment-related lawsuits come your way. And they're coming more frequently—EPLI claims have skyrocketed 400% over the past twenty years. Whether you run a five-person startup or manage a team of fifty, understanding EPLI isn't just smart business—it's essential protection.
What Exactly Is EPLI Coverage?
Employment Practices Liability Insurance protects your business from claims made by employees, former employees, and even job applicants. It covers the big three areas that cause most workplace lawsuits: wrongful termination, discrimination, and harassment. But it also extends to retaliation claims, failure to promote, breach of employment contract, and various other employment-related allegations.
When someone files a claim against your business, your EPLI policy steps in to cover legal defense costs, settlements, and court judgments. This includes attorney fees, court filing fees, expert witness costs, and all those other expenses that add up faster than you'd think. The coverage typically protects not just your company, but also your executives, managers, and employees who might be named in a lawsuit.
Here's the thing most business owners don't realize: your general liability policy won't cover employment disputes. Neither will your workers' compensation insurance. EPLI fills a critical gap in your business insurance portfolio that other policies simply don't address.
The Most Common EPLI Claims (and Why They're on the Rise)
Retaliation claims now top the list. In 2024, nearly 48% of all charges filed with the Equal Employment Opportunity Commission involved retaliation allegations. That's when an employee claims you punished them for complaining about workplace issues, requesting accommodations, or participating in an investigation. The EEOC handled over 46,000 retaliation charges last year alone.
Discrimination claims come in many flavors: age, race, gender, sexual orientation, religion, national origin, disability, and pregnancy. The new Pregnancy Workers Fairness Act generated nearly 2,000 charges in its first year, with the EEOC filing major lawsuits in 2024. Discrimination claims can result in substantial settlements—some cases reach six or even seven figures when they go to trial.
Harassment claims, particularly sexual harassment, often generate the largest settlements. Recent data shows sexual harassment cases average around $120,000 in settlements. But the real cost extends beyond money—these claims damage your reputation, hurt employee morale, and consume countless hours of management time.
Wrongful termination rounds out the top claims. Even when you have legitimate reasons to let someone go, they might claim the real motivation was discriminatory or retaliatory. California wrongful termination settlements average nearly $49,000 with legal representation, and about 10% of cases result in verdicts exceeding $1 million.
The Real Cost of Employment Lawsuits
Let's talk numbers. The EEOC recovered $700 million for workers in 2024, with individual litigation awards exceeding $40 million. That money came from employers—many of whom probably never imagined they'd face such claims.
But here's what really gets expensive: defense costs pile up whether you win or lose. Attorney fees, depositions, document review, expert witnesses—these expenses often exceed $75,000 even for relatively straightforward cases. Complex litigation can cost much more. And that's before any settlement or judgment.
Settlement amounts vary widely. Most wrongful termination cases settle between $5,000 and $80,000. Sexual harassment claims average around $120,000. Discrimination cases can reach $120,000 to $1 million or more. Without EPLI coverage, these costs come straight from your business accounts.
Compare that to EPLI premiums: a standard $1 million policy costs between $1,500 and $2,500 annually for businesses with 5 to 20 employees. That's a fraction of what defending a single lawsuit would cost. For most businesses, EPLI isn't an expense—it's an investment in financial stability.
What EPLI Covers (and What It Doesn't)
A typical EPLI policy covers your legal defense costs and pays settlements or judgments for employment-related claims. This includes discrimination (based on age, race, gender, religion, disability, sexual orientation, pregnancy, and other protected characteristics), harassment, wrongful termination, retaliation, failure to promote, breach of employment contract, and mismanagement of employee benefits.
The coverage extends to claims from current employees, former employees, and job applicants. It protects your company, executives, managers, and other employees named in lawsuits. Many policies also offer optional third-party coverage for claims from customers, clients, or vendors alleging harassment or discrimination.
Now for what EPLI doesn't cover. Punitive damages and criminal fines typically fall outside your policy. Wage and hour disputes—unpaid salary, overtime, bonuses, or commissions—usually aren't covered either. Workers' compensation claims, bodily injury, and property damage all require separate insurance policies. Some insurers also exclude certain industries or claims arising from intentional illegal acts.
Read your policy carefully and ask questions. Some policies include wage and hour defense cost coverage as a built-in feature. Others offer it as an optional add-on. Understanding exactly what you're buying prevents nasty surprises when you file a claim.
Getting the Right EPLI Coverage for Your Business
Start by assessing your risk. Businesses with more employees face higher exposure, but even small companies with just a few workers can get sued. Consider your industry, workplace culture, management training, and documentation practices. Companies with solid HR policies and regular training typically qualify for better rates.
Determine appropriate coverage limits. Many businesses start with $1 million in coverage, though larger companies or those in high-risk industries might need more. Factor in your deductible, which typically ranges from $2,500 to $25,000. Higher deductibles lower your premiums but increase out-of-pocket costs when claims arise.
Shop around and compare policies. EPLI coverage varies significantly between insurers. Some bundle it with other business policies, while others offer standalone coverage. Look beyond price—examine coverage limits, exclusions, deductibles, and whether defense costs apply to your policy limit or come in addition to it.
After securing coverage, focus on prevention. EPLI protects you financially, but avoiding claims altogether is even better. Implement clear employment policies, train managers on proper hiring and termination procedures, document everything, address complaints promptly, and conduct regular HR audits. Good practices lower your risk and often reduce your insurance costs over time.
The employment landscape grows more complex every year. New laws, increased awareness of workplace rights, and a more litigious culture mean employment claims will likely continue rising. EPLI coverage gives you peace of mind that a single claim won't devastate your business financially. Talk to an insurance professional who specializes in business coverage to find the right EPLI policy for your specific needs. Your future self will thank you.
