According to insurance industry estimates, fewer than 50% of companies carry EPLI — and the smaller the employer, the lower the percentage. Although the cost of coverage varies, a $1 million policy with a $5,000 deductible usually costs from $50 to $250 a year per employee. When you think about obtaining EPLI, weigh the cost of this protection against the likelihood of a claim, settlement, or verdict. For background, see Understanding Employment Practices Liability Insurance (EPLI).
Doing some rough math, there are about 6 million companies in the U.S., and roughly 2.5 million businesses have 15 or more employees. My experience tells me that tripling the number of EEOC claims gives a fairly realistic number of total claims filed. Dividing 2.5 million companies by 300,000 claims comes to roughly a one in eight chance of experiencing a claim during a given year, which means the firm can expect to face at least one employment-related claim over an eight-year period.
Cost figures on claims
- Median award (2004–2010): $199,600
- Mean award (2004–2010): $632,589
- Median settlement (2004–2010): $85,000
- Mean settlement (2004–2010): $515,816
- Nearly two in four plaintiffs' verdicts (39%) ranged from $100,000 to $500,000; 12% of verdicts were $1 million or more. Verdicts tend to be higher in state cases than in federal ones.
- Legal fees, stress, additional exposures, etc. — a minimum of $25,000 per claim and going up from there.
- Loss of pre-claim non-productivity due to the fear of not letting a poor performer go because you might get sued — hard to quantify.
- Impact on the company's reputation among stakeholders — effectively priceless.
Note: The mean is the arithmetical average and is sensitive to extreme scores when samples are small. The median is the middle score and is less sensitive to extremes, so it can be a better indicator with smaller samples.
According to CNA, an employer is more likely to face an EPLI claim than a Property or General Liability claim. Almost 75% of litigation against corporations involves employment disputes, and nearly 100,000 sector charges were filed in a recent year against private employers under EEOC statutes, leading to hundreds of millions in settlements and charges. More than 40% of Employment Practices claims are filed against companies with 15–100 employees; see Employment Practices Liability Insurance (EPLI) for common risk drivers and policy options.
By purchasing EPLI, you not only cap your out-of-pocket exposure but you allow yourself the freedom to make personnel decisions without the same level of litigation risk. Using average premium and settlement figures, a 50-person company paying about $120 per employee annually could spend less on premiums over time than the cost of a single settlement and related legal fees. For more on employer protections, review Employment Practices Liability (EPL) Insurance: Essential Protection for Employers.
The bottom line: Not getting EPLI is a gamble that could significantly impact or even wipe out your cash flow at any time. If you're interested in a checklist for purchasing EPLI, please talk to an agent.
Frequently Asked Questions
What is employment practices liability insurance (EPLI)?
EPLI covers employers for claims made by employees alleging discrimination, wrongful termination, harassment, and other employment-related torts and civil rights violations.
Who should consider buying EPLI?
Any employer can face employment-related claims, but small to mid-size companies with 15–100 employees are commonly targeted and should evaluate EPLI based on risk exposure and budget.
Does EPLI cover legal fees and settlements?
Policies typically cover defense costs, settlements, and judgments up to policy limits, though coverage details and exclusions vary by insurer and policy form.
How does deductible affect my EPLI policy?
Higher deductibles lower premiums but increase out-of-pocket cost per claim; choose a deductible level that balances cash flow with risk tolerance.