The Top 7 Things to Check on Your Employment Practices Liability Policy
- Andrea Luoni
- Aug 13
- 4 min read
Employment Practices Liability Insurance (EPLI, or EPL) is one of those coverages that businesses often buy, file away, and never look at again — until a claim hits. That's a mistake. EPL policies vary widely from carrier to carrier, and the fine print can mean the difference between a claim that's handled smoothly and one that leaves you exposed.
In our work at RateCraft, we find issues in EPL, E&O, and D&O manuscript policies roughly 90% of the time we review them and most issues we are able to fix at no additional cost to the policy. That means the large majority of businesses currently have a policy in force with gaps, unfavorable terms, or missing enhancements they don't know about. Here are seven areas worth checking on your own policy.
1. Who's Actually Covered
Don’t assume "employees" means everyone who works for you. Check whether the definition of "insured" extends to:
• Independent contractors and temporary or leased workers
• Volunteers and interns (paid or unpaid)
• Officers, directors, and management-level employees acting in their capacity
• Former employees (a common source of claims, especially post-termination)
If your workforce includes a meaningful number of contractors, freelancers,
or gig workers, make sure the policy explicitly contemplates them. A gap here
is one of the most common — and costly — surprises in an EPL claim.
2. What Wrongful Acts Are Defined — and Excluded
The heart of any EPL policy is its definition of "Wrongful Act." Most policies cover the basics: discrimination, harassment, wrongful termination, and retaliation. But look closely at what’s not included. Common gaps or sub-limits show up around:
• Wage and hour claims (often excluded entirely or available only as a limited
buyback)
• Failure to promote or negligent evaluation
• Breach of employment contract
• Immigration-related claims
• Claims arising from a reduction in force or mass layoff
Wage and hour exposure in particular has grown significantly, and many carriers only offer defense-cost sublimits ($250,000 is common) for these claims — not full indemnity. Know exactly what’s in and what’s carved out before you need it.
3. Third Party Coverage
Standard EPL policies are built to respond to claims from your own employees. But exposure doesn’t stop there — customers, vendors, and other third parties can bring discrimination or harassment claims against your business too. Check whether your policy includes third party coverage, and if so:
• Whether it applies to claims from customers, clients, and vendors, not just employees
• Whether it's a full grant of coverage or a limited sublimit
• Whether it's included automatically or only available as an added
endorsement For businesses with significant customer-facing staff — retail,
hospitality, healthcare, financial services — this is not a coverage to skip.
4. Defense Costs: Inside or Outside the Limit
This is one of the most overlooked details. Ask: are defense costs paid in addition to the limit of liability, or do they erode it?
Most EPL policies today are "defense within limits," meaning legal defense costs eat into the same pool of money available to pay a settlement or judgment. A policy with a $1M limit and a protracted, expensive defense could leave little or nothing left to actually resolve the claim. Some carriers offer defense outside the limit as an enhancement — worth exploring, especially for organizations in litigious industries or states.
5. Duty to Defend vs. Duty to Indemnify
Related to the point above: who controls the defense? Under a duty to defend policy, the insurer selects counsel and manages the litigation. Under a duty to indemnify (or “reimbursement”) policy, you hire your own counsel — often from a panel — and the insurer reimburses covered costs after the fact.
This distinction affects cash flow, control over strategy, and how quickly counsel gets engaged. Even under a duty to defend policy, an insured can — and should — push for the right to choose its own counsel rather than being limited to panel attorneys. Many mid-sized employers prefer duty-to-defend for the cash flow certainty, but if you have a long-standing relationship with employment counsel, this is a term worth negotiating rather than accepting as fixed.
6. Consent to Settle and Hammer Clauses
Buried in the conditions section, this one can cause real friction mid-claim. Many EPL policies include a "hammer clause" (also called a consent-to-settle provision): if the insurer wants to settle and you refuse, your liability going forward may be capped at what the insurer offered — leaving you responsible for any amount above that if the case proceeds and loses.
Check:
• Whether your consent is required to settle
• If there's a hammer clause, and how harsh the percentage split is (some are
50/50 on excess costs, others are more insured-friendly at 70/30 or 80/20 or
90/10)
• Whether the insurer can settle without your consent at all in worst-case
scenarios If avoiding a forced settlement matters to your organization’s
reputation or precedent-setting concerns, this clause deserves real scrutiny
— not just a skim.
7. Cancellation Clause
Check the conditions under which the carrier can cancel your policy mid-term. This should be limited to non-payment of premium — not broadened to include other triggers such as material change in risk, claims activity, or underwriting discretion. A cancellation clause that extends beyond non-pay gives the carrier far more latitude to walk away from coverage than an insured should accept.
The Bottom Line
EPL coverage is not a standard policy, and neither are E&O or D&O. Two policies with identical limits and premiums can respond completely differently to the same claim based on how these areas are structured. Given that we find issues in these manuscript forms roughly 90% of the time, there's a good chance your current policy has room for improvement. Our reviews are free and quick.
The good news: nearly all of these areas — coverage for third parties, defense cost treatment, right to choose counsel, hammer clause percentages, cancellation triggers — can simply be negotiated to more favorable terms for the insured. And it costs nothing to ask. Before your next renewal, pull the actual policy form — not just the binder or summary — and walk through each of these points, or have your broker walk through them with you.
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