How to Avoid the 3 Most Common EPLI Risks

Employment Practices Liability Insurance (EPLI) protects employers against claims alleging wrongful employment practices. The three most common reasons employees file EPL suits are due to sexual harassment, discrimination, and wrongful termination. However, like all insurance policies, there are exclusions and limitations for EPLI coverage.

How Does EPLI Coverage Work?

Insurers draft EPLI policies on a claims-made basis. This imposes two significant limitations.

  1. The policy only covers the insured for wrongful employment practices that occur after the policy start date and before the policy expires/renews.
  2. The insured must report the claim to their insurer during the policy period.

These two restrictions can present a major time trap for businesses. For example, many insurance companies consider a right-to-sue notice as the opening of a claim. However, many businesses don’t recognize it as such because the employer doesn’t have to respond to it. It can be well over a year before an employee files a suit after the employer receives a right-to-sue notice. By then, there is a high chance that the employer’s policy renewed and the insurer will deny coverage for failing to report the claim during the policy period. In addition, EPLI policies only cover financial damages. They don’t offer coverage for bodily injury, property damage, etc.

Understanding the 3 Major EPLI Risks

As mentioned above, the three most common sources of EPLI claims are sexual harassment, discrimination, and wrongful termination.

Sexual Harassment

Employers have seen a significant increase in sexual harassment claims in recent years. With the birth of the #MeToo movement, employers need to take more care than ever to prevent sexual harassment in the workplace. This includes maintaining and enforcing a sexual harassment policy. Failure to do so is tantamount to inviting sexual harassment lawsuits. Sexual harassment can take many forms including physical behaviors, verbal comments or jokes, asking for sexual favors in return for promotions, and much more.


Much like sexual harassment, discrimination can occur in a variety of ways. Discrimination lawsuits happen when an employer treats an employee or group of employees differently due to race, religion, color, gender, national origin, age, or other factors. Several laws protect employees from discrimination including:

  • The Equal Pay Act of 1963
  • The Civil Rights Act of 1964
  • The Age Discrimination in Employment Act of 1967
  • The Americans with Disabilities Act of 1990

Employers should familiarize themselves with all of these laws to avoid discrimination lawsuits.

Wrongful Termination

There are several legitimate reasons to dismiss an employee; however, failing to document can lead to wrongful termination lawsuits. Hiring methods can also affect this type of lawsuit. For example, businesses operating in employment-at-will jurisdictions don’t have to provide a reason for terminating an employee. However, termination-for-cause jurisdictions must have a justifiable reason. This can create problems for an employer if he or she failed to document an employee’s conduct.

For example, if an employee filed a complaint, and then the employer fired that employee, it looks very bad on paper. However, if the employer documented the employee’s poor performance, investigated the complaint and determined it was unfounded, and then fired the employee due to insufficient job performance, they will have a much better defense.

Implementing comprehensive policies and procedures are the best methods for avoiding employment practices lawsuits. However, relying on rules and guidelines is not enough protection for businesses. EPLI policies provide peace of mind for when best-laid plans fall through. Contact the experts at The Reilly Group to learn how we can help protect your business.