The Importance of Employment Practices Liability Insurance

Small business owners face an increasing risk of lawsuits from employees who allege discrimination, sexual harassment, retaliation and other claims. The changing legal environment also makes it difficult for small business owners to stay abreast of current regulations.

To help you protect against this risk, Employment Practices Liability Insurance (EPLI) provides coverage for wrongful employment act claims against your business by employees or applicants for employment that claim their legal rights have been violated. This may include employment-related claims made through the Equal Employment Opportunity Commission (EEOC) or the equivalent state administrative agency.


What EPLI Covers

Typically, an EPL policy provides coverage for reimbursement for settlements, judgments, and the expense of defending yourself when you are accused of:

  • Failure to hire or promote
  • Discrimination against employees or prospective employees
  • Sexual or other harassment or coercion
  • Wrongful termination, dismissal or discharge
  • Retaliation
  • Employment-related libel, slander, humiliation, mental anguish infliction of emotional distress, defamation or invasion of privacy.
  • Employment-related misrepresentations to employee or applicant
  • Other wrongful employment acts


Why it Pays to Have EPLI

According to Hartford Steam Boiler, the average EPL claim costs a business between $27,000 and $50,000. Ask yourself: If you were facing this type of a claim, would you be able to run your business as usual?

To better illustrate the need for EPLI coverage, here are a few claims scenarios — and their possible costs — courtesy of Hartford Steam Boiler:


  • A small gift and flower shop owner was sued for pregnancy and gender discrimination when the claimant alleged that the employer had repeatedly treated her differently because of her gender and condition. The claimant provided several fellow employees who attested to the claimed adverse treatment by the employer. Settlement: $30,000; Legal fees: $12,000


  • The receptionist at the sales office of an apartment complex complained of disability discrimination when the apartment building owner asked her to wear a hat to cover her lack of hair. The receptionist, undergoing cancer treatments, refused to wear any coverings on her head. The apartment building owner terminated her employment. She brought suit, claiming harassment and violation of the Americans with Disabilities Act. Settlement: $20,000; Legal fees: $8,500


  • A store owner was sued by a customer for sexual harassment when the customer alleged that the son of the owner, also an employee of the company, made inappropriate comments and gestures and solicited the claimant for sexual favors. Settlement: $60,000; Legal fees: $20,000

More Ways to Reduce Your Risks

A lack of Human Resource professionals, poor documentation practices and high employee turnover rates are all issues that go hand-in-hand with many small businesses — and some of the main reasons why small business owners need EPLI coverage.

In addition to your EPLI coverage, you can also take the following steps to help prevent wrongful employment act claims:

  • Stay up-to-date on Safety Resources.
  • Keep your insurance agent updated on changes to your business.
  • Maintain detailed process documentation.
  • Have a detailed employee handbook.
  • Make it clear that you have a zero-tolerance policy on sexual and other harassment.
  • Conduct background checks prior to employment.


We want you and your business to be successful, which is why GuideOne is here to provide expertise on your insurance needs. Learn more today!



For a complete statement of terms, conditions, coverages and exclusions, please see the policy contract. Claims examples are for illustration purposes only. Do no reproduce or post online, in whole or in part, without written permission.

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© 2022 The GuideOne Center for Risk Management, LLC. All rights reserved. This material is for informational purposes only. It is not intended to give specific legal or risk management advice, nor are any suggested checklists or action plans intended to include or address all possible risk management exposures or solutions. You are encouraged to retain your own expert consultants and legal advisors in order to develop a risk management plan specific to your own activities.