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What is EPLI Coverage and Why Should You Care?

If you own a business and have employees, you should care about EPLI or Employment Practices Liability Insurance.  Many employers have workers’ compensation and employer liability coverage in the event that an employee is injured on the job.  Likewise, a company’s commercial general liability policy provides protection against certain claims by third parties and may fund the cost to defend litigated claims.  However, the risk of an employment dispute should not be overlooked, as there are increasing reports of employee claims and lawsuits.


Employment Disputes in the News

There are many headline grabbing reports of employees suing employers or former employers.  Just a few such cases involving big businesses such as Google, Wal-Mart, and Lockheed Martin include the following:

  • In 2017, Wal-Mart was sued by female employees who alleged that the company discriminated against them with respect to pay, opportunities for promotion, training, and job assignment. [1] Wal-Mart previously defended similar claims in a case that went to the United States Supreme Court in 2011.[2]
  • In Braden v. Lockheed Martin Corp., a laid-off project specialist successfully proved age discrimination against Lockheed Martin.  The stunning award of $50 million in punitive damages was ordered for a new trial, but the jury also awarded over $1.5 million in compensatory damages which was not part of the order.[3]
  • Google has been sued for alleged age discrimination and gender pay discrimination.[4]

Even a prospective applicant may allege a claim for discrimination.  Target Corp. reportedly settled a class action lawsuit in which prospective applicants alleged racial disparity in the company’s use of criminal background checks.[5]


Potential Surge in Sexual Harassment Claims

After the news broke of alleged serial harassers Harvey Weinstein and Matt Lauer, the issue of sexual harassment in the workplace has gained increasing attention.  The launch of the #MeToo movement is aimed at encouraging alleged victims to speak out, where before the fear of retaliation may have prompted silence.

Some commentators expect a wave of sexual harassment claims in the wake of Weinstein and the #MeToo movement.  Although the current focus has been on the media and entertainment industries, businesses across the spectrum could face claims based on sexual harassment.  In fact, one of the early figures in reports on the Weinstein scandal was an attorney.  Lawyer David Boies and the law firm of Boies Schiller Flexner have been named as “co-conspirators” but not defendants in a lawsuit brought by several women under the Racketeer Influenced and Corrupt Organizations Act (“RICO”).[6]  Harvey Weinstein, the Weinstein Company Holdings LLC and other corporate defendants are named in the suit which alleges that the defendants and conspirators facilitated an orchestrated cover-up of Weinstein’s alleged sexual misconduct.

While that case has unique circumstances, employers in a variety of industries face potential vicarious liability for alleged sexual harassment by their employees.  The national attention focused on sexual harassment could prompt an uptick in such claims.  Of course, preventative efforts should be made and employers should employ zero tolerance policies against sexual harassment.  But in the event a claim is made, employers with EPLI policies could have coverage for such claims, depending on the specific wording of the policy and facts of the litigation.


Why might a business need an EPLI policy?

While Texas is an “at will” state, meaning that an employer can terminate an employee for any reason or no particular reason (absent a contract or statutory prohibition), employers may still find themselves on the receiving end of a lawsuit or arbitration demand by an employee who claims discrimination, unfair treatment, or wrongful termination or retaliation (see, e.g., Texas Labor Code section 451.001, “A person may not discharge or in any other manner discriminate against an employee because the employee has filed a workers’ compensation claim in good faith”).

A typical workers’ compensation/employers’ liability policy excludes such liability.  Likewise, a standard commercial general liability policy protects against claims by third parties, but excludes liability to employees.  EPLI was developed to fill this void.


What are the benefits of an EPLI policy?

A major benefit of insurance, whether general liability, auto liability, or employment practices liability, is to offset some or all of the cost of litigation.  Even if an employee’s claim is meritless, an employer may face the prospec of expensive attorney’s fees in simply defending the claim.  Arbitration and litigation can be unpredictable and lengthy, thus defense costs are difficult to predict or budget for.

EPLI coverage can provide an employer with coverage for both defense costs and indemnity for potential liability.  Such coverage is generally subject to a deductible or retention amount and capped at a maximum amount, or “limit.”


In general, what does EPLI cover and exclude?

An EPLI policy is not guaranteed to cover all employment-related disputes.  Further, policy forms vary, and a policy may differ from standard forms that have developed.

Nonetheless, in general terms, typical EPLI policies may provide protection for claims

  • By an employee,
  • Against the employer,
  • For alleged “wrongful acts” in employment or “wrongful employment practices.”
  • Wrongful employment acts may include wrongful demotion, deprivation of a career opportunity, harassment, libel, slander, termination, or retaliation.
  • Claims by people other than employees such as customers and vendors may also implicate EPLI coverage.

Typical exclusions in EPLI policies include the following:

  • Criminal or malicious conduct
  • Contractual liability
  • Liability under workers’ compensation laws
  • Violation of employer-specific laws such as the WARN Act (“Worker Adjustment and Retraining Notification Act of 1988”), liability under ERISA (the Employees Retirement Income Security Act of 1974), and the National Labor Relations Act.
  • Some policies exclude bodily injury.


Reporting Claims

If an EPLI policy is “claims-made and reported” as is common, the liability claim must be first made against the employer and the employer must report the claim to the insurance company during the period of the policy’s coverage.  One such provision, for example, provided as follows:

This Policy shall pay on behalf of the Insureds all Loss arising from any Claim first made against the Insureds during the Policy Period and reported to the Insurer in writing during the Policy Period or within 90 days thereafter, for any Wrongful Act.[7]

Also, many liability policies require prompt notice or notice of a claim as soon as practicable.  Failure to provide prompt notice could relieve the insurer of the duty to provide coverage under certain circumstances.[8]  Further, some policies may exclude coverage for defense costs incurred prior to the report to the insurance company, even if the claim is reported during the policy period.


Know your Risk, and your Options

Insurance is intended to protect against a business’s risk.  In addition to loss prevention and avoidance, liability insurance policies can be a way to control the risk of costly litigation.  EPLI coverage should be tailored to a business’s needs as with other insurance in its portfolio.  For more information on policies, you may want to contact your insurance broker or agent.


[1] Forbes et al. v. Wal-Mart Stores, Inc., No. 9-17-cv-81225 (S.D. Fl.).

[2] Wal-Mart Stores Inc. v. Dukes e al., 131 S.Ct. 2541 (2011).

[3] Braden v. Lockheed Martin Corp., No. 1:14-cv-04215 (D.N.J.).

[4] Heath v. Google, Inc., No. 5:15-cv-01824 (N.D. Cal.); Ellis v. Google, Inc., No. CGC-17-561299 (San Francisco Superior Ct.).

[5] Freckleton et al. v. Target Corp., No 14-cv-00807-GLR (D.Md. Dec. 12, 2017).

[6] Louisette Geiss et al. v. The Weinstein Co. Holdings, LLC et al. No. 1:17-cv-09554 (S.D.N.Y. 12/6/17).

[7] E.H. Summit, Inc. v. Carolina Cas. Ins. Co., 2016 WL 7496142, *3 (C.D.Cal. 2/24/16).

[8] See, e.g., Prodigy Communications Corp. v. Agricultural Excess & Surplus Ins. Co., 288 S.W.3d 374, (Tex. 2009).

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