Why an EPL Policy is an Essential Policy for Any Business

When you consider insurance products for your business, what are the first few that come to mind? 

General Liability and Property policies are the most common ones purchased by business owners. Commercial Auto policy is another frequently purchased policy if your business uses company vehicles.

An Employment Liability policy is another fundamental policy to consider. This policy protects you in the event you are sued for wrongful conduct by a current or former employee. 

Unfortunately, we often find that many clients to do not consider an Employment Practices policy a necessary policy to have. The reasons are varied - anything from the additional expense to not being aware of the considerable benefits and protections that this policy provides.

What does this policy cover, and more importantly why do we consider it a real must-have policy for a small and medium-sized business? These questions are precisely what we will discuss in this blog post.

Here are a few interesting statistics to consider.

Lawsuits Jump 400%

In the last 20 years, our society has seen a 400 percent increase in employee-initiated lawsuits against their current or former companies. It would be logical to assume that an insurance product’s demand that helps a business deal with such lawsuits increased as well. 

However, only 23% of all businesses with 100 employees or less have purchased or considered purchasing an EPL (Employment Practices Liability) policy.

One of the reasons that business owners are not convinced in the necessity of such policy is due to the common misconception that employees sue only big companies. This couldn’t be farther from the truth.

Almost 50% of all employee lawsuits are brought against smaller companies who have less than 100 employees.

If you have ever experienced any kind of lawsuit, personal or business related you know how expensive, time-consuming and nerve-wracking they are. A single lawsuit can bring business operations to a standstill.

Let’s take a look below at what an EPL policy covers, how it can help your business deal with a lawsuit and survive the financial aftermath of a settlement without compromising the operation of your company.

What Does an EPL Policy Cover?

An Employment Practices Liability policy is an insurance product that is designed to protect your business from the financial consequences of being sued.

Of course, it can’t prevent the lawsuit in the first place. But it’s the next best thing if the lawsuit does happen.

When we discuss insurance products, we distinguish between two types of policies – a property policy and a liability policy.

A property policy insures your actual physical property such as your office computers for example against damage. A liability policy deals with lawsuits. Much as other liability policies, an EPL policy will cover the cost to defend an employee related lawsuit against you from the moment it is brought in. 

This means it will cover the cost to hire an attorney, administrative court fees, the cost to conduct any investigations as pertains to defending your case. And of course, the settlement and any judgment awarded against you should the case go to trial.

Key Coverage Issues to Pay Attention To

As with any insurance policy, there are few key provisions to be aware of to make sure there are no surprises down the line.

Duty to Defend vs. Duty to Pay:

One of those key provisions is whether the insurance company takes on the duty to defend or the duty to pay

Duty to defend means that the insurance carrier has to defend any claim that can potentially be covered. Even if it is a nuisance claim or a claim that eventually be denied the insurance carrier will absorb the defense costs.

Unlike the duty-to-defend provision, the duty to pay does not require the carrier to defend any claim. It merely means that the carrier has to reimburse the insured (or advance funds) for the covered claim costs and losses.

Duty to defend is broader since it extends to claims where the coverage is ultimately denied or no damages are awarded. Duty to defend also extends defense coverage to “reasonably related claims” to the covered claim even if that related claim is not covered.

For example, wrongful termination claims (that are covered under an EPL policy) are often combined with a “wage and hour” claim.

Since those two are related, even if the wage and hour are not otherwise covered, the duty-to-defend provision will require the insurer to defend that claim along with covered wrongful termination claim. This is one of the biggest benefits of a duty-to-defend policy.

A Definition of an “Employee"

Pay special attention to how your policy defines an “employee.” This is an important definition since it largely determines if the claim will be covered.

For example, some EPL policies define an employee as “any person who receives wages or salary from the insured for work that is directed and controlled by the insured.”

Under this definition, a claim brought in by a volunteer or an unpaid intern will not be covered. If your business relies on the help of volunteers, then this definition will significantly limit your coverage.

Make sure to discuss concerns such as this with your agent to make sure your policy is fit for your unique situation.

Third Party Coverage

Until now, when we talked about the EPL coverage, we have always discussed potential claims being brought in by current or former employees. Third Party coverage is a lesser known, but potentially essential coverage of the Employment Practices Liability policy. This coverage protects against the lawsuits brought in by non-employees of the company, i.e., a third party for the wrongful conduct of the company’s employees such as harassment or discrimination.

Unfortunately, these types of claims are typically excluded under your standard General Liability policy leaving you with a potentially uncovered claim. Examples of third party claimants include vendors, temporary employees, visitors, suppliers, and customers.

Third party coverage does not come standard; however, many carriers will endorse your policy to include it for an additional premium.

At the beginning of this section, we mentioned that the Third Party could be an essential coverage for some business. So what businesses would need it?

Any business that interfaces with the public daily such as retailers, the entertainment industry, educational organizations, etc, should consider this coverage.

Coverage for all applicable business entities

When reviewing your policy always make sure that all appropriate entities are listed as named insureds on your policy, especially if your company has more than one entity or multiple DBAs are used.

Common EPL claims and claim examples.

Third Party

One of the most known claim examples of third-party coverage in action involves Denny’s restaurants and its’ African-American patrons. In this case, which made national headlines, the African-American patrons of Denny’s brought in a lawsuit in which they alleged racial discrimination. 

They stated that they were made to wait longer for their orders, had to prepay their meals and were even refused service. The claim started with a handful of patrons and spun into a giant class action suit. 

The plaintiffs were awarded a judgment of $54M against Denny’s.

Third party claims have the potential to snowball and spin out of control, so if you interact with many customers daily, this coverage is invaluable.

Wrongful Termination

Wrongful termination is one of the most common claims. When an employee is let go the emotions run high for all parties and as a result lawsuits often happen.

Many laws protect employee rights at the workplace, so it’s important to be very careful when letting someone go to avoid violating these rights.

Examples of wrongful termination include:

  • An HR director is asked to perform an unethical task and is terminated following her refusal.
  • An employee is fired for poor performance without a warning or an opportunity to correct his actions.
  • An employee fired in retaliation after reporting sexual harassment to their supervisor


A discrimination lawsuit can allege discrimination based on a number of factors – age, gender, race, etc. A few examples of a discrimination lawsuit are:

  • Disability discrimination – A fitness trainer was injured on the job and filed a Workers Compensation claim. After being cleared for a modified duty (only light exercises), he was fired from the fitness center for presenting a poor image to clients due to his reduced mobility.
  • Age Discrimination – A 55-year-old fitness instructor was asked to teach a senior fitness class. She was offended as nobody else was asked and sued for gender discrimination


A female employee sued her former company for sexual harassment and retaliation. She alleged that her supervisors asked her inappropriate personal questions, and made inappropriate sexual comments addressed to her.

After she rebuffed his advances, her supervisor retaliated. He excluded her from meetings, lessened her workload, and gave her a negative evaluation.


A well-established business, regardless of the size, often runs like a well-oiled machine.

All the players know where they are supposed to be and what they are supposed to do. A lawsuit filed against your business is akin to throwing a wrench into that machine bringing it to a screeching halt.

A lawsuit brings chaos. It disrupts everything and makes you focus on dealing with the crisis at hand instead of running your business.

Another big issue that comes along with an EPL lawsuit? Damage to your reputation amongst your customers (such as in Denny’s Restaurant case) or lower morale amongst your own employees.

While an EPL policy cannot guarantee that you will not get sued, it can help you with the financial and logistical consequences of defending and settling such a lawsuit. Carriers employ experienced claim staff that knows the ins and outs of the system and have panels of attorneys they work with for different types of claims.

They help you navigate this ordeal while working to defend you. Of course, they will also pay for the cost of such defense and any settlement reached.

An EPL policy provides you a peace of mind so you can focus on what you know best – running your business.

Do you have an EPL policy? If not, what has been keeping you from purchasing it?

Kernan Insurance Agency

9932 Brewster Lane

Powell, OH 43065

Main office: 614-764-0121
Toll free: 800-718-2663
Fax: 614-764-0310

Office Hours:

Monday - Friday: 7:00 AM - 5:00 PM

Weekends: By Appointment