Employment Practices Liability Insurance (EPLI) policies are complex contracts with varying coverage terms, exclusions, and conditions. Unlike general liability insurance, EPLI is a named-perils policy, meaning it covers only the risks explicitly listed in the contract. Brokers and insurance buyers must conduct a detailed review of policy language to avoid coverage gaps that could leave a business exposed to significant financial risk.
This article provides an in-depth look at EPLI coverage terms, common exclusions, and key policy conditions that impact claim payouts.
Core EPLI policy terms
Named Perils vs. Broad Coverage
EPLI policies operate on a named-perils basis, offering coverage only for specific, listed allegations related to employment practices. Typical covered risks include:
- Wrongful termination
- Workplace discrimination (based on race, gender, age, disability, etc.)
- Sexual harassment
- Retaliation
- Defamation, libel, or invasion of privacy
While these categories sound comprehensive, many employers mistakenly believe EPLI covers all employment-related disputes. In reality, significant gaps exist—unless additional endorsements are purchased. As always, it is important to read the fine print to understand what is fully covered, and ask your broker to present different coverage options.
Policy exclusions
Understanding what EPLI insurance does not cover is just as important as knowing what it does. Common exclusions include:
1. Wage and Hour claims
One of the most frequent and consequential exclusions in EPLI is for wage and hour violations, especially those arising under the Fair Labor Standards Act (FLSA).
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- Unpaid overtime, missed meal breaks, and employee misclassification are usually excluded.
- Some insurers offer defense-only coverage, which pays legal fees but not settlements or back wages.
- When coverage is available, it often comes with high self-insured retentions (SIRs), typically ranging from $250,000 to $1 million per claim.
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2. Punitive damages and intentional acts
EPLI policies often exclude:
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- Punitive damages, especially in jurisdictions that allow them in employment discrimination cases.
- Claims involving fraud, willful misconduct, or criminal behavior by the insured or their employees.
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These exclusions can result in massive out-of-pocket costs if not properly understood.
3. Breach of employment contract
Many policies exclude breach of contract claims, even if tied to an underlying employment issue. This includes:
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- Violations of individual employment agreements
- Breach of implied contracts in handbooks or offer letters
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Some insurers offer endorsements to partially cover these risks, usually with sublimits and tight conditions.
4. Third-Party Employment Practices claims
Unless specifically endorsed, EPLI typically excludes claims brought by:
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- Customers, vendors, independent contractors, or other third parties alleging harassment or discrimination
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This gap can be particularly risky for hospitality, healthcare, or retail employers. Third-party EPLI coverage is often available as a policy add-on.
Learn more: Third-Party Employment Practices Liability Insurance
5. Workplace violence and crisis response
Standard EPLI forms rarely cover:
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- Acts of workplace violence
- Costs associated with employee counseling, security measures, or crisis PR services
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Some carriers offer workplace violence extensions, which can help mitigate reputational and financial fallout following an incident.
Policy conditions that impact coverage
Beyond the listed perils and exclusions, several policy conditions can significantly affect how and whether a claim is paid.
The “Hammer Clause” (Consent to Settle clause)
Also known as the consent-to-settle clause, this provision allows the insurer to recommend a settlement. If the insured disagrees:
- The insurer may limit its financial responsibility to what it would have paid had the claim been settled.
- Any additional defense or judgment costs may fall to the insured.
This clause can create tension between a company’s desire to clear its name and the insurer’s goal to resolve claims quickly and affordably.
Learn more: The Hammer Clause
Extended Reporting Period (ERP) and Prior Acts coverage
Also called a discovery period, ERP allows the insured to report claims that occur after the policy period ends, as long as the underlying event happened during the policy term.
- Most policies provide a 30–60-day ERP for free
- Paid ERPs can extend reporting for up to six years
This is crucial when switching carriers or winding down operations. Ask your broker for a quotation on Extended Reporting Period if you’re selling your business, or if you’re shutting it down. WIthout this endorsement, unknown past-wrongful acts that may give rise to a claim in the future are not covered.
Learn more: Extended Reporting Period
Prior Acts coverage
Prior acts coverage protects against claims arising from incidents that occurred before the policy start date, as long as they weren’t known when the policy began.
- Important for companies purchasing EPLI for the first time
- Often subject to a retroactive date listed in the policy
EPLI risk management best practices
While EPLI coverage is critical, risk management practices can reduce both the frequency and severity of claims:
- Maintain clear and compliant employee handbooks
- Conduct regular training on harassment, discrimination, and retaliation
- Keep detailed documentation of disciplinary actions and complaints
- Conduct periodic HR audits and wage & hour reviews
Insurance carriers may require these practices—or offer premium discounts if they’re in place.
Key takeaways
- Employment Practices Liability Insurance (EPLI) is a named-perils policy, meaning it only covers listed risks like wrongful termination or harassment.
- Common exclusions include wage and hour violations, punitive damages, and third-party claims—unless specifically endorsed.
- Policy conditions like the hammer clause, ERP, and prior acts coverage can dramatically affect claim outcomes.
- Businesses must closely review EPLI policy terms and consider tailored endorsements to close critical coverage gaps.
- Partnering with a knowledgeable broker and maintaining strong HR practices are essential to maximizing EPLI protection.
Want to dive deeper into EPLI?
Read our EPLI Buyer’s Guide for a practical walkthrough of policy terms, exclusions, and must-have endorsements. Whether you’re a broker, underwriter, or business owner, our guide helps you evaluate and structure Employment Practices Liability Insurance that fits your unique risk profile—without the fine print surprises.
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