Employment Practices Liability (EPLI)

Consider a remodeling contractor with a dozen employees. A project coordinator is let go after a dispute with a supervisor, and a few months later the contractor receives a complaint alleging retaliation and discrimination. The owner calls the general liability carrier and learns that the policy does not respond, because it is built for third-party bodily injury and property damage and not for claims by the contractor's own employees. Workers' compensation does not respond either, because nobody was injured. Without employment practices liability insurance, the legal defense and any settlement come out of the business's own pocket.

Employment practices liability insurance, or EPLI, covers claims by employees, former employees, and job applicants alleging wrongful acts in the employment relationship. According to the Insurance Information Institute, that includes discrimination, sexual harassment, wrongful termination (including constructive discharge and retaliatory discharge), failure to hire or promote, wrongful discipline or demotion, breach of employment contract, and defamation or privacy violations. A policy pays defense costs, settlements, and judgments up to its limit. Some policies also extend to third-party claims, such as a customer, vendor, or subcontractor alleging harassment or discrimination by your staff.

California raises the stakes even for small employers. The Fair Employment and Housing Act (FEHA) prohibits discrimination by employers with five or more employees, bars retaliation against workers who assert their rights, and prohibits harassment in all workplaces, including those with fewer than five employees. Employers with five or more employees must also provide sexual harassment and abusive conduct prevention training: two hours for supervisors and one hour for nonsupervisory employees, every two years. An employee generally has three years from the date they were last harmed to file a complaint with the California Civil Rights Department, so a claim can surface long after the employee has left.

EPLI has firm limits, and they matter to contractors. Most policies exclude workers' compensation claims, claims under laws such as the NLRA, the WARN Act, OSHA, and ERISA, punitive damages, and criminal acts. Wage-and-hour claims are typically excluded or limited to a defense-cost sublimit, and availability varies by carrier and state. Ask about this specifically before you buy, because wage disputes are a real exposure for contractors with hourly crews and a standard policy may not respond to them.

Most EPLI policies are written on a claims-made basis. The policy generally has to be in effect when the claim is made, and a retroactive date can extend coverage to earlier incidents, so keep coverage continuous and be careful when you change carriers. In many policies, defense costs are paid within the policy limit, which reduces the amount left for a settlement. EPLI can be bought as a standalone policy or as an optional endorsement on a business owner's policy or other package policy, though package versions may come with more limits and exclusions.