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Employment Practices Liability Insurance (Part 1 of 2)

by Julie Ngo

Employment Practivces Liability Insurance (EPLI) began to be offered in the 1990’s as one result of federal legislation such as The Americans with Disabilities Act, The Civil Rights Act of 1991, the Age Discrimination Act and the Family Medical Leave Act. Each of these acts established new, legal rights that employees had not held in the past. These new rights sometimes provided the legal basis for an employee, former employee, or potential employee to sue the employer.


What Is It? EPLI provides protection to an employer, including officers and directors, against claims made by employees, or potential employees relating to many types of employment-related lawsuits. Examples of some of the types of claimes typically covered by an EPLI policy are:


  • Sexual Harrassment
  • Hostile Work Environment
  • Discrimination (age, sex, race, religion)
  • Wrongful termination as a result of downsizing, mergers or acquisitions
  • Unfair hiring practices
  • Retaliation


What’s the Risk? The current economic turndown, characterized by a sharp increase in workforce reduction, has created a potentially hostile environment where the possibility of an employee lawsuit is quite high, even for firms that make every effort to comply with the law.


Statistics kept by the U.S. Equal Employment Opportunity Commission (EEOC)1 give a rough sense of the magnitude of the risk. For FY 2011, the EEOC logged more than 99,000 new complaints. 2 While many cases are setttled without going to court, in the same time period the EEOC resolved 277 individual and class lawsuits, with a total monetary recovery of over $90,900,000, an average of over $328,000 in damages per case. 3


Why Does My Business Need This? Defending an employment practices claim, even if the claim is groundless or fraudulent, can be costly. If the employee’s claim is upheld, an un-insured liability for monetary damages could be a significant threat to a company’s continued existence. A business cannot rely on its general liability policy to provide protection, as nearly all standard general liability policies contain exclusions for claims resulting from employment-related practices.


1 The EEOC is the federal agency responsible for enforcing federal workplace discrimation laws.

2 Source: EEOC, Charge Statistics FY1997 through FY2011.

3 Source: EEOC, Fiscal Year 2011 Performance and Accountability Report Highlights.